BNP Paribas (Canada) v. Donald S. Bartlett Investments Limited et al.

[Indexed as: BNP Paribas (Canada) v. Donald S. Bartlett Investments Ltd.]

113 O.R. (3d) 151
2012 ONSC 5315

Ontario Superior Court of Justice

Goldstein J.
September 20, 2012

Civil procedure -- Pleadings -- Admissions -- Plaintiff suing defendant on personal guarantee in 1990 -- Defendant admitting validity of guarantee in statement of defence and counterclaim and relying on validity of guarantee in other litigation -- Defendant moving in 2012 to amend statement of defence and counterclaim to deny validity of guarantee -- Motion dismissed -- Rule 51.05 of Rules of Civil Procedure applying -- Test in rule 51.05 not met -- To permit defendant to amend pleading to contradict position taken in other litigation amounting to abuse of process -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 51.05.

The defendant DB, along with his mother and sisters, gave an unconditional guarantee on a loan provided by the plaintiff in 1982 to a family business in which DB then worked as executive vice-president. In 1990, the plaintiff sued on the guarantees, and the defendants filed a statement of defence and counterclaim in which they admitted virtually all of the facts in the statement of claim. In 2012, DB brought a motion seeking to file a fresh as amended statement of defence resiling from his earlier position that the guarantee was valid.

Held, the motion should be dismissed.

Where, as in this case, the effect of an amendment is the withdrawal of an admission, rule 51.05 applies, and the moving party must establish that the proposed amendment raises a triable issue; the admission was inadvertent or resulted from wrong instructions; and the withdrawal will not result in any prejudice that cannot be compensated for in costs. DB's motion failed all three elements of that test. DB was seeking to reverse the position he had maintained in this and other litigation for 22 years. By doing so, he contradicted evidence that he had given in other proceedings. No triable issue was raised on those [page152] circumstances. Given that DB had taken a different position in other litigation, he could not have inadvertently made the admission that the guarantee was not enforceable. DB's motion was tactical: he faced possible defeat in an upcoming summary judgment motion unless he withdrew the admissions in his statement of defence. The plaintiff would suffer prejudice that could not be compensated by costs if the motion were granted. To permit DB to amend his pleading in the face of the positions he took in other litigation would be an abuse of process. It was irrelevant that the other defendants were permitted to withdraw admissions and plead new defences. DB's mother and sisters had filed their amended pleading in 2009, and pleaded that they were unsophisticated in business affairs. DB was educated in business matters and was heavily involved in the business when he gave the guarantee.

MOTION to amend a statement of defence by withdrawing admissions.

Cases referred to
Tarkalas v. Zographos, 2008 46158 (ON SCDC) , [2008] O.J. No. 1047, 234 O.A.C. 172, 2008 CarswellOnt 1458, 166 A.C.W.S. (3d) 46 (Div. Ct.), affg [2006] O.J. No. 794, 2006 CarswellOnt 1136, 146 A.C.W.S. (3d) 226 (S.C.J. - Master) , consd

Other cases referred to
Antipas v. Coroneos, 1988 10348 (ON SC) , [1988] O.J. No. 137, 29 C.C.L.I. 161, 26 C.P.C. (2d) 63, 8 A.C.W.S. (3d) 155, 1988 CarswellOnt 358 (H.C.J.);
Gowling, Lafleur, Henderson L.L.P. v. Meredith, [2011] O.J. No. 2298, 2011 ONSC 2686 (S.C.J. - Master);
National Trust Co. v. Furbacher, [1994] O.J. No. 2385, 50 A.C.W.S. (3d) 1196 (Gen. Div.) ;
Shuttleworth v. Eberts, [2011] O.J. No. 4550, 2011 ONSC 6106 (S.C.J.)

Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 26.01 , 51.05

Junior Sirivar and Lisa M. Filgiano, for plaintiff.
Ian C. Wallace, for defendant Donald Bartlett Jr.

Reasons for Decision

[ 1 ] GOLDSTEIN J.: -- In 1982, the defendant moving party, Donald Bartlett Jr. ("Mr. Bartlett Junior"), gave an unconditional guarantee on a loan provided by the plaintiff BNP Paribas, a bank ("BNP"). In 1990, BNP sued on the guarantee and a defence was filed. The matter then proceeded with the speed and deliberation of a receding glacier. Mr. Bartlett Junior now moves to amend his defence by withdrawing admissions made in 1990. For the reasons that follow, the motion is dismissed.

Facts

[ 2 ] Arctic Gardens Inc. ("Arctic Gardens") was a large and successful business owned by the Bartletts. Its main business was the distribution of frozen vegetables. In 1981, wanting to expand, Arctic Gardens purchased land and a processing plant in Desoronto, Ontario from The Great Atlantic and Pacific Company ("A&P") for $1 million. The purchase was financed by [page153] means of a vendor take-back mortgage with A&P. At the time, Arctic Gardens had revenues of around $17 million per year.

[ 3 ] In 1982, pursuing further expansion, Arctic Gardens borrowed $900,000 from BNP. Donald Bartlett, the family patriarch ("Mr. Bartlett Senior"), negotiated the loan. Mr. Bartlett Junior, his son, worked in the firm as executive vice- president. He played a large role in operations, although not in finance. He owned 3 per cent of the voting shares of Arctic Gardens, as did each of his mother and three sisters. Mr. Bartlett Senior owned 85 per cent of the voting shares. BNP demanded that members of the Bartlett family provide unconditional guarantees to a limit of $300,000 each.

[ 4 ] (Where I refer to the "guarantees", I mean all of the guarantees executed by the members of the Bartlett family. Where I refer to the "guarantee", I mean only the guarantee executed by Mr. Bartlett Junior. As will become clear, there has been a great deal of overlapping litigation surrounding Arctic Gardens.)

[ 5 ] Prior to signing the guarantee, Mr. Bartlett Junior received independent legal advice from the firm of Doheny MacKenzie, a firm of solicitors in Montreal. His mother and sisters also received independent legal advice. His counsel, David M. Doubilet, sent a certificate of independent legal advice to BNP on December 20, 1982, indicating that Mr. Bartlett Junior had been given legal advice with regard to his obligations. Mr. Doubilet wrote:

We have reviewed and are familiar with the Guarantee. We have also signed a certificate of independent legal advice dated December 20, 1982, certifying that Donald Benjamin Sinclair Bartlett Jr. received independent legal advice from us prior to executing the Guarantee.

In reliance on the foregoing, we are of the opinion that Donald Benjamin Sinclair Bartlett Jr. duly executed the Guarantee and that the Guarantee will, upon delivery to Banque Nationale de Paris (Canada), constitute a valid and binding obligation of Donald Benjamin Sinclair Bartlett Jr., enforceable in accordance with its terms.

[ 6 ] In 1983, Arctic Gardens obtained a line of credit from the Canadian Imperial Bank of Commerce ("CIBC") for $1 million, in addition to the BNP loan and the A&P mortgage.

[ 7 ] Things began to go wrong for Arctic Gardens in 1984. CIBC called its loan and appointed a receiver (the "CIBC receiver"). BNP and A&P appointed a joint receiver (the "BNP receiver"). According to an affidavit filed in 2000 by Donald Bartlett Junior, the BNP receiver took control of the Deseronto plant and property, while the CIBC receiver liquidated the frozen food inventory on behalf of CIBC. The receiverships were, allegedly, mismanaged and resulted in the wasting of assets as well as the [page154] payment of exorbitant fees to the receivers. In April 1984, a trade creditor petitioned Arctic Gardens into bankruptcy in the Superior Court of Quebec.

[ 8 ] In 1988, creditors of Arctic Gardens, including Mr. Bartlett Junior, brought an action in Quebec Superior Court against CIBC (which I will refer to as the "Quebec damages litigation"). BNP was added as a third party by CIBC. The crux of the Quebec damages litigation was the alleged mismanagement of the assets of Arctic Gardens by the CIBC receiver. The Quebec damages litigation ended in 1996 after a trial and appeal.

[ 9 ] In May 1984, BNP demanded payment of the amounts due under the guarantees from the individual members of the Bartlett family as well as from a family holding company. BNP was not paid. In 1990, BNP filed the statement of claim in this litigation against all members of the Bartlett family and a family holding company in this court (I refer to the litigation, in which this motion is brought, as the "BNP litigation"). BNP's claim is a simple demand for the amounts owed on the guarantees plus accumulated interest. The defendants retained Clifford Lax, then of Goodman and Goodman. Mr. Lax filed a joint statement of defence and counterclaim on behalf of all the defendants. In the defence and counterclaim, the defendants admitted virtually all of the facts in the statement of claim, although they denied that the amounts were due and payable. The defendants counterclaimed, alleging mismanagement of the assets of Arctic Garden by the BNP receiver.

[ 10 ] Because of the overlap between the Quebec damages litigation and the BNP litigation, counsel agreed to hold the BNP litigation in abeyance in 1992 pending the resolution of the Quebec litigation. As noted, the Quebec litigation ended in 1996.

[ 11 ] In 2000, Mr. Bartlett Senior, Mr. Bartlett Junior and the Bartlett family holding company brought an action against BNP, A&P, the BNP receiver and the Government of Canada in this court (which I will refer to as the "Ontario damages litigation"). The government was involved by virtue of an Export Development Bank loan that is not at issue in this motion. In a nutshell, the Bartletts alleged that the BNP receiver had mismanaged the Desoronto plant and property, paid itself exorbitant fees and ultimately destroyed the residual value of the plant and equipment, which (according to Mr. Bartlett Junior's affidavit) was worth considerably more than the value of the loans outstanding. In 1990, there was a fire that destroyed the plant and equipment, which the plaintiffs in the receivership litigation allege was caused by the negligence of the BNP receiver. There was an obvious overlap between the counterclaim filed by the [page155] defendants in 1990 in the BNP litigation, and the Ontario damages litigation commenced in 2000.

[ 12 ] Mr. Bartlett Junior has also brought an action for damages against Mr. Bartlett Senior. I do not know the status of that litigation.

[ 13 ] It is extremely important to understand that in the Quebec damages litigation, the Ontario damages litigation and up until now in the BNP litigation that Mr. Bartlett Junior did not dispute the validity of the guarantee. Indeed, Mr. Bartlett Junior relied on the validity of the guarantee in order to prosecute the other actions and to maintain the counterclaim in the BNP litigation.

[ 14 ] In 2001, the defendants in the Ontario damages litigation brought a motion for security for costs. The circumstances of that motion, which was dismissed by Justice Haines, are not relevant here, but the following comment is of note [at para. 4]:

The circumstances that give rise to this action arise out of a receivership that has been ongoing since 1984. The receivership was precipitated by the bankruptcy of Arctic Gardens Inc. The plaintiffs all provided guarantees to secure certain indebtedness of Arctic Gardens Inc. In this action, they as guarantors are claiming damages for mismanagement of the receivership which they claim has left them exposed on their guarantees. It is, as guarantors, that they claim status to bring the action and all of the plaintiffs rely on the same alleged acts or omissions to support their claim.

[ 15 ] Mr. Bartlett Junior has acknowledged the validity of the guarantee in other affidavits and cross-examinations.

[ 16 ] Mr. Bartlett Junior now brings this motion, seeking to file a fresh as amended statement of defence. He seeks to resile from his earlier position that the guarantee was valid. He now claims that in 1982 he relied on the advice of Mr. Bartlett Senior. He says that he was completely dependent on his father, and that he signed the guarantee at the behest of his father. He now claims that he did not receive proper independent legal advice, and that the nature of the guarantee and his obligations under it were not properly explained to him by Doheny MacKenzie. He pleads that he was in a position of extreme vulnerability with regard to BNP and his father, and that BNP had a duty of care regarding the guarantee, which it breached by failing to advise him of the risks associated with it. He also claims that he had virtually no contact with Mr. Lax, that he gave Mr. Lax no instructions and that Mr. Bartlett Senior handled the details of the BNP litigation.

[ 17 ] Mr. Bartlett Junior's sister and mother brought a motion in 2009 to file a fresh as amended statement of defence. They raised similar undue influence and duress defences that [page156] Mr. Bartlett Junior seeks to raise. BNP consented to the filing of the new pleading.

[ 18 ] BNP opposes this motion. There is a motion for summary judgment scheduled for October. I am aware that Mr. Bartlett will have a difficult time winning the summary judgment motion as a result of losing this motion.

Analysis

[ 19 ] Mr. Wallace, for Mr. Bartlett Junior, argues that this is a simple motion pursuant to rule 26.01 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 ] to amend a pleading and ought to be granted given the mandatory language of the rule. Mr. Sirivar, for BNP, argues that, in reality, what is sought is the withdrawal of admissions and that this is, therefore, really a motion pursuant to rule 51.05 . I agree with Mr. Sirivar. In my view, what Mr. Bartlett Junior in effect seeks is to withdraw admissions.

[ 20 ] Rule 26.01 governs the amendment of pleadings:

26.01 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. Rule 51.05 governs the withdrawal of admissions made in a pleading:

51.05 An admission made in response to a request to admit, a deemed admission under rule 51.03 or an admission in a pleading may be withdrawn on consent or with leave of the court.

[ 21 ] Although the language of rule 26.01 is mandatory, it is clear that where the effect of an amendment is the withdrawal of an admission rule 51.05 applies: Antipas v. Coroneos, 1988 10348 (ON SC) , [1988] O.J. No. 137, 26 C.P.C. (2d) 63, 1988 CarswellOnt 358 (H.C.J.).

[ 22 ] The party seeking to withdraw an admission must establish the following: (1) the proposed amendment raises a triable issue; (2) the admission was inadvertent or resulted from wrong instructions; (3) the withdrawal will not result in any prejudice that cannot be compensated for in costs. In my view, the motion fails all three elements of the test.

[ 23 ] No triable issue: Mr. Bartlett Junior seeks to reverse the position that he has maintained in this and other litigation for 22 years. By doing so, he contradicts evidence that he has given [page157] other proceedings. Indeed, he relied on his status as a guarantor in other proceedings so that he could bring actions for damages in the Quebec damages litigation and the Ontario damages litigation. Furthermore, he could not have pursued the counterclaim without admitting the validity of the guarantee. His credibility will likely be undermined by the position he has taken in other sworn evidence. I simply do not see how a triable issue is raised in the circumstances here.

[ 24 ] Inadvertence or wrong instructions: Given the fact that Mr. Bartlett Junior has taken a different position in other litigation, including in sworn evidence, I do not see how he could have inadvertently made the admission that the guarantee was enforceable. As noted, in order to effectively prosecute the counterclaim, the validity of the guarantee had to be admitted in the original 1990 statement of defence. It seems clear that the position taken at the time was the obvious one and the one most likely to lead to a favourable outcome for Mr. Bartlett Junior.

[ 25 ] Justice Saunders, in Antipas, supra, modified the test to permit the withdrawal of an admission in order to prevent an injustice if there is a reasonable explanation. I do not accept that there has been a reasonable explanation for the change in position. Again, Mr. Bartlett Junior quite consciously maintained a different position in other litigation in order to advance other claims.

[ 26 ] As well, I do not accept that I should allow Mr. Bartlett Junior to amend the pleadings as he has been unrepresented for lengthy periods of time. He has also been represented for lengthy periods of time. Mr. Lax represented him for almost ten years. For the next 12 years, Mr. Bartlett Junior still made no attempts to withdraw the admissions made in the original statement of defence although he was represented for at least some of that time. He now essentially argues that his various lawyers' failure to advise him that the guarantee was not enforceable was a form of solicitor's negligence. That argument constitutes a constructive waiver of solicitor-client privilege: Gowling, Lafleur, Henderson L.L.P. v. Meredith, 2011 ONSC 2686 () , [2011] O.J. No. 2298, 2011 ONSC 2666 (S.C.J. - Master), approved by Quigley J. in Shuttleworth v. Eberts, [2011] O.J. No. 4550, 2011 ONSC 6106 (S.C.J.) . And yet, Mr. Bartlett Junior has resisted attempts to obtain Mr. Lax's file. At the hearing of the motion before me, Mr. Wallace did resile from the position that no file would be provided, and indicated that it was a matter of logistics that he simply did not have it.

[ 27 ] Mr. Bartlett Junior has had plenty of time to obtain the file and take a more conciliatory position, given that his sisters [page158] brought a similar motion in 2009. Although I am asked to draw an adverse inference from the failure to obtain and produce the Lax file, I do not need to do so in order to decide this motion.

[ 28 ] Regarding the length of time it has taken for Mr. Bartlett Junior to bring this motion, Mr. Wallace, on his behalf, argues that there was no need for Mr. Bartlett Junior to seek to withdraw the admissions and bring a fresh as amended statement of defence, since the litigation had not been pursued with any vigour by BNP. In other words, Mr. Bartlett Junior was entitled to keep the information to himself until it was necessary to reveal it. With respect, I do not accept this argument. Our entire system of discovery, affidavits of documents, requests to admit and other litigation mechanisms is designed to prevent precisely the kind of trial by ambush that Mr. Wallace describes.

[ 29 ] I agree with Mr. Sirivar that the actual explanation for bringing this motion now is tactical: Mr. Bartlett Junior faces possible defeat in the summary judgment motion scheduled for October unless he withdraws the admissions in his statement of defence.

[ 30 ] Prejudice to BNP: The prejudice to BNP is obvious and clearly could not be compensated by costs. I do not know if BNP would be able to successfully third-party Mr. Bartlett Junior's original lawyers and Mr. Bartlett Senior at this stage but it seems very unlikely. In any event, it would be unfair to permit the amendments and place BNP in the position of having to risk that limitation periods had not expired and that solicitor's files from 1982 would be available. Furthermore, it seems reasonable that BNP would not have agreed to hold the BNP litigation in abeyance in 1992 had it been known that the enforceability of the guarantee was in issue.

[ 31 ] Accordingly, I find that Mr. Bartlett Junior's motion fails all three elements of the Antipas test.

[ 32 ] Abuse of process: This case is similar to Tarkalas v. Zographos, [2006] O.J. No. 794, 2006 CarswellOnt 1136 (S.C.J. - Master) . In that case, the plaintiff loaned money to the defendants for the purchase of a property. According to the statement of claim, the money was loaned prior to the registration of the mortgage as the plaintiff trusted the good faith of the defendants to deliver the mortgage. No mortgage was delivered. The plaintiff, relying on certain facts, obtained a certificate of pending litigation. The defendants denied that the money was for the purpose of buying a property, but rather an investment in an adult entertainment business. Five years later, the plaintiff sought to amend her claim, essentially agreeing that she was, in fact, making a business investment. She also sought to add a [page159] party -- presumably the party with assets. The proposed new pleading was entirely inconsistent with the facts pleaded in her original statement of claim. Moreover, it was inconsistent with the facts set out in the affidavit she filed in order to obtain the certificate of pending litigation. As Master Haberman put it [at para. 32], "The issue for this court is whether to permit an amendment that files in the face of the plaintiff's evidence, evidence already relied on by her to obtain relief." Master Haberman dismissed the motion, commenting that [at para. 42]:

. . . I know of no authority, and was taken to none by plaintiff's counsel, that allows a party to amend a pleading in a manner that is inconsistent with a prior sworn statement in the same proceeding, let alone doing so absent a compelling explanation.

[ 33 ] Master Haberman's decision was upheld by Justice Kiteley: 2008 46158 (ON SCDC) , [2008] O.J. No. 1047, 2008 CarswellOnt 1458, 234 O.A.C. 172 (Div. Ct.).

[ 34 ] Mr. Bartlett Junior seeks to do what the plaintiff in Tarkalas sought to do: amend a pleading in the face of a prior inconsistent statement. Cases do not proceed in glorious isolation, where a litigant can assume that he can take a position in one case and a different position in another case. To permit it would be an abuse of the court's process: National Trust Co. v. Furbacher, [1994] O.J. No. 2385, 50 A.C.W.S. (3d) 1196 (Gen. Div.) .

[ 35 ] Amendments by other defendants: Mr. Wallace further argues that since Mr. Bartlett Junior's mother and sisters filed a fresh as amended statement of defence in 2009 with the consent of BNP, it would be unfair to deny his motion. In a nutshell, his argument is that since his co-defendants, who were in exactly the same position as him, were permitted to withdraw admissions and plead new defences, he should be allowed to do so as well, particularly given the consent of BNP. Furthermore, since he has been unrepresented for much of the time he should be held to a lower standard in terms of the alacrity with which he has pursued this amendment.

[ 36 ] This argument is superficially attractive. An unrepresented litigant may not understand the nuances of the rules and the requirements of pleadings. Mr. Bartlett Junior was the third of the four children and therefore similar in age to his sisters. That said, I do not accept that Mr. Bartlett Junior should be treated the same as his sisters and his mother. They filed their amended pleading in 2009. I do not know why Mr. Bartlett Junior waited for three years to file this motion. They have all pleaded (other than the mother) that they were in their early 20s at the time. They also plead that they were unsophisticated [page160] in business affairs and completely dependent on their father. There is no other evidence before me of their knowledge of Arctic Garden's affairs, their employment relationship to Arctic Gardens, or the nature and length of their education.

[ 37 ] In contrast, I have evidence before me about Mr. Bartlett Junior's role. He was the corporate secretary of Arctic Gardens and signed loan documents in that role. He admits that he reviewed the BNP loan documents. He certified to BNP that Arctic Gardens had passed a corporate banking resolution authorizing the BNP loan. He provided a specimen signature to BNP for signing purposes. He studied business and accounting at university. He was heavily involved in the business operations of Arctic Gardens, including labour- management relations, distribution and trucking. I accept that he was not heavily involved in the finance side of the business, but it is a reasonable inference that he was aware of the general financial arrangements. Certainly, I think I can infer that he understood the business purpose of the loans negotiated by Mr. Bartlett Senior, as they were for the purpose of expanding operations. Indeed, Mr. Bartlett Junior also admitted in a cross-examination on an affidavit that he understood that the personal guarantees were a requirement of the BNP loan.

[ 38 ] In other words, Mr. Bartlett Junior was educated in business matters and heavily involved in the business at a relatively senior level despite his young age. There is no evidence before me that reveals the age, education, sophistication and level of involvement in Arctic Gardens of his mother and sisters. There is also no evidence before me indicating that his mother or his sisters have sworn affidavits at variance from the positions that they now take. I have no basis upon which I can accept that they are in the same position as he is. Accordingly, I reject this submission.

Disposition

[ 39 ] The motion is dismissed with costs to BNP on a partial indemnity basis. If counsel are unable to agree on the amount, I would be pleased to receive a brief costs submission (not greater than two pages in length) and a bill of costs from the plaintiff within 14 days, and a brief responding costs submission (not greater than two pages in length) from the defendant within ten days after that.

Motion dismissed.