COURT FILE NO.: CV-11-441515

DATE: 20121001

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Alliance H. Inc. and Michel Hart, Plaintiffs

AND

Henry Schein Ash Arcona Inc. and Henry Schein, Inc., Defendants

BEFORE: Madam Justice Darla A. Wilson

COUNSEL:
Martin J. Henderson, Counsel for the Plaintiffs

Adrian C. Lang & Vanessa Voakes, Counsel for the Defendants

HEARD: September 14, 2012

ENDORSEMENT

[ 1 ] The Defendants bring this motion for a variety of relief: an order striking out the Amended Fresh as Amended Statement of Claim in its entirety without leave to amend on the basis it discloses no reasonable cause of action; alternatively, an order striking the claim as an abuse of process; in the further alternative, an order striking various paragraphs or portions of paragraphs on the grounds they are scandalous, frivolous or vexatious. The first two orders are sought pursuant to Rule 21 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194, relief that must be sought from a judge. The order striking various paragraphs is made pursuant to Rule 25.11 which is within the jurisdiction of a Master.

[ 2 ] At the outset, it was abundantly clear that the time allotted for the hearing of the motion according to the estimation provided by counsel was woefully inadequate. In the circumstances, I advised counsel that I would hear the motion and relief sought pursuant to Rule 21 only.

[ 3 ] Rule 21(1)(b) provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action or defence. No evidence is admissible on such a motion. Rule 21.01(3) provides that a Defendant may move before a judge to have an action stayed or dismissed on the ground that there is another proceeding pending between the same parties in respect of the same subject matter; or the action is frivolous or vexatious or is otherwise an abuse of the process of the court.

[ 4 ] I will proceed to determine whether the claim ought to be struck out as disclosing no reasonable cause of action and/or whether it ought to be stayed or dismissed on the ground there is another action pending.

[ 5 ] The moving party asserts that the pleadings ought to be struck as disclosing no reasonable cause of action for various claims: breach of the implied contractual duty of good faith; the tortious inducement of breach of an implied contractual duty of good faith; inducement of breach of professional and fiduciary duties; conspiracy; and intentional interference with economic interests. It is additionally submitted that the Plaintiffs have claimed against Ash Baker for breach of contract in Court file CV-11-00436090 in the Ontario Superior Court of Justice and thus, there is another proceeding pending between the same parties dealing with the same subject matter.

Background

[ 6 ] This claim was initially instituted December 8, 2011. In response, the Defendants served a Demand for Particulars. The Plaintiffs served a 12 page reply to the Demand in March 2012. A Fresh as Amended Statement of Claim was served in April 2012. This was superseded by the Amended Fresh as Amended Statement of Claim in August 2012. The current motion was served shortly thereafter.

[ 7 ] Certain facts are not in dispute. The Plaintiff corporation, Alliance H. Inc. [“AHI”] is a Canadian company engaged in the business of manufacturing and distributing dental equipment. The Plaintiff Michel Hart is the controlling shareholder of AHI. The Defendant Henry Schein Inc. [“HSI”] is an American corporation and distributes medical and dental products. The Defendant Henry Schein Ash Arcona Inc. [“HSAAI”] is a Canadian corporation and a subsidiary of HSI.

[ 8 ] AHI and HSAAI entered into a Supply Agreement dated January 10, 2005 with AHI agreeing to manufacture and sell various products to HSAAI, who agreed to purchase them. A dispute arose in 2006 and the parties proceeded to mediation with counsel. At the mediation, a settlement was achieved and the parties signed a release dated December 1, 2006.

[ 9 ] Following the mediation and settlement, AHI and HSAAI entered into an Amended and Restated Supply Agreement which ran from December 1, 2006 to February 28, 2011. HSI was a guarantor of HSAAI’s obligations under the new agreement.

[ 10 ] A further dispute arose between the parties under the New Supply Agreement [“NSA”] and arbitration was commenced by HSAAI. A counterclaim in the arbitration was included by the Plaintiffs seeking damages for breach of alleged contractual duties of good faith, tortious inducement of breaches of contractual and fiduciary duties, tortious conspiracy to injury and intentional interference with economic interests. That arbitration has been scheduled to proceed before the Honourable Coulter Osborne in September 2012.

[ 11 ] The Plaintiffs served their original Statement of Claim in December 2011, seeking various declarations as well as damages. The Arbitrator issued a decision in March 2012 accepting jurisdiction over the dispute submitted by HSAAI but not over the Plaintiffs’ Counterclaim.

[ 12 ] In April 2012, the Defendants requested the Plaintiffs amend their Statement of Claim to remove the request for declaratory relief in light of the Arbitrator’s Award. A Fresh as Amended Statement of Claim was served May 1, 2012. The Defendants take the position that the most recent pleading failed to remove the matters already before the Arbitrator and argue that portions of the claim must be struck out without leave to amend. The Defendants argue that the claims are properly pleaded.

Analysis

[ 13 ] In Dale v. TREB [i] the Defendants brought a motion pursuant to Rule 21.01(1)(b) to strike out the Plaintiffs’s claim as disclosing no reasonable cause of action. This is the same Rule as the Defendants move under in the case at bar. Justice K. Campbell nicely summarized the principles for consideration by the court on such motions:

There are a number of well-settled legal principles that provide the framework of analysis for the determination of this motion. First, according to rule 21.01(2)(b), "no evidence is admissible" on a motion to strike out a claim for disclosing no reasonable cause of action. Rather, the motion must be determined on the adequacy of the contents of the impugned claim and any documents that may have been incorporated into the claim by reference. Second, the law is clear that motions to strike can only succeed if the defendants establish that it is "plain and obvious" that the claim discloses no cause of action. In other words, the claim should only be struck if it is "beyond doubt" that the claim will not succeed at trial. If the claim has some chance of success, it should be permitted to proceed. Third, for the purpose of determining such motions, the court must accept the facts as alleged by the plaintiff in the claim as proven unless they are patently ridiculous or incapable of proof. Fourth, the court must read the statement of claim generously, recognizing that there must be allowances made for drafting deficiencies. Fifth, the potential length and complexity of the issues, the legal novelty of the alleged cause of action, and/or the potential for the defendants to mount a strong and persuasive defence are not factors that should prevent the plaintiff from proceeding. The combined application of these principles creates a "stringent" legal test for defendants moving to strike out a statement of claim, while creating a threshold for plaintiffs which is "not high." See generally: Hunt v. Carey Canada Inc ., 1990 90 (SCC) , [1990] 2 S.C.R. 959 , at pp. 971-980; Nash v. Ontario (1995), 1995 2934 (ON CA) , 27 O.R. (3d) 1 (C.A.) at p. 7; MacKinnon v. Ontario Municipal Employees Retirement Board (2007), 2007 ONCA 874 () , 88 O.R. (3d) 269 (C.A.) at para. 19-21 ; Piedra v. Copper Mesa Mining Corp . 2011 ONCA 191 () , [2011] O.J. No. 1041 (C.A.) at para. 36 ; P. Perell and J.W. Morden, The Law of Civil Procedure in Ontario (2010, 1st ed.) at pp. 444-445.

[ 14 ] I must comment that the manner in which this motion is brought makes it difficult for the court to render a decision. Parts of the motion are brought alleging there is no reasonable cause of action disclosed and it must be struck under Rule 21.01(b). Other paragraphs are objected to on the grounds that there is another proceeding pending elsewhere in Ontario, Rule 21.01(3). There are other portions of paragraphs where, it is alleged, are scandalous, frivolous or vexatious and offend Rule 25. This latter relief is within the jurisdiction of a Master while the relief sought pursuant to Rule 21 must be obtained from a Judge.

[ 15 ] The original claim was issued almost a year ago and since that time, it appears the parties have been arguing about the adequacy of the pleadings. This resulted in two amendments to the Statement of Claim and the launching of this motion. For ease, I will try and group the objections of the Defendant into categories.

No reasonable cause of action disclosed for alleged breach of implied duty of good faith

[ 16 ] Counsel for the Defendant submits that the Plaintiffs have failed to plead any facts to support a claim for an implied duty of good faith and argues that such a duty could not be made out, apparently because the NSA was made between sophisticated commercial entities both of whom were represented by counsel.

[ 17 ] I disagree. Courts have found an implied duty of good faith to exist in commercial contracts between sophisticated parties.The comments of O’Connor A.C.J.O. in Transamerica Life v. ING [ii] are of assistance. He noted,

It is fair to say that Canadian courts have proceeded cautiously in recognizing duties of good faith in the performance and enforcement of contracts. Interestingly, when Canadian courts have referred to duties of good faith, they have done so in circumstances where the result of the case has been determined by the application of other, more established, legal principles…Canadian courts have not developed a comprehensive and principled approach to the implication of duties of good faith in commercial contracts…The implication of a duty of good faith has not gone so far as to create new, unbargained-for, rights and obligations. Nor has it been used to alter the express terms of the contract reached by the parties. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties, or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into…

[ 18 ] Justice Perell considered the implied duty of good faith in contract law in Rio Algom Limited v. Canada [iii] and he stated, “…while Canadian courts have been cautious about the scope of a doctrine of good faith in the performance of contracts, the doctrine is developing and it does have a role to play…” In finding the Plaintiff’s claim incapable of being sustained, he stated “…whatever the scope of the doctrine of good faith in the law of contract, it does not go so far as to impose new obligations on a contracting party or additional obligations that are inconsistent with the terms of the contract…An implied duty of good faith cannot be used to alter the express terms of the contract…”

[ 19 ] In paragraph 48 of the Statement of Claim, it is pleaded “In the circumstances, the Defendants were bound by duties of good faith implied by law into the NSA in order to give business efficacy to that contract, and to ensure that the parties’ expressed common purpose and commercial objectives underlying that agreement were not undermined by misconduct inconsistent with the principles of good faith.” Whether or not the court ultimately finds that there was a duty of good faith implied in the NSA is not a matter for my determination; it is clear, however, that the facts supporting this pleading are contained in the Statement of Claim and on the law, it is not a claim that cannot be made out.

[ 20 ] In studying the claim as it is framed in the amended Statement of Claim before me, at this stage, I must accept the facts as pleaded and determine whether the claim has any possibility of success. On a Rule 21 motion, it is not the function of the court to decide whether a particular claim has merit and will ultimately be successful at trial. Rather, the job of the court is to decide whether the claim as pleaded has any possibility of success. Some commercial contracts have been interpreted in the jurisprudence as containing an implied duty of good faith. The Plaintiffs have alleged that the Defendant breached the NSA by not ordering the amounts of product they agreed to and by failing to make reasonable efforts to market and sell the products from AHI. These are the facts that are contained in the Statement of Claim which, it is argued, support a finding of a breach of an implied duty of good faith. Thus, in my opinion, it is not plain and obvious that the Plaintiffs have no chance of success in proving there was a breach of an implied duty of good faith. This claim will not be struck as failing to disclose a reasonable cause of action at this juncture.

No cause of action for tortious inducement of implied contractual duty of good faith

[ 21 ] The moving party submits that the allegations in the current Statement of Claim fail to meet the requisite elements of a claim for inducing breach of an implied term of the contract and further, there are no material facts pleaded to support a breach. Again, I disagree. If the court finds an implied duty of good faith then the cause of action for the inducement of breach of contractual duty to act in good faith is available. It is alleged that HSI induced HSAAI to breach the terms of the contract both express and implied by having HSAAI stockpile AHI products and reselling at low prices which resulted in AHI being prevented from marketing its own products for a profit. In my view, the material facts are pleaded in the Statement of Claim to support a claim for inducement of an implied duty of good faith in the contract. It is not plain that this claim has no possibility of success and the motion to strike must fail.

No cause of action for inducement of breach of professional and fiduciary duties

[ 22 ] The solicitor for the moving party submits that this claim is based on the actions of a non-party solicitor named Ash Baker who negotiated the settlement. It is pointed out that Baker is not a party in this action and, therefore, there cannot be a pleading of a breach of fiduciary duty that HSAAI or HSI could have induced, so the claim should be struck.

[ 23 ] I disagree. It is pleaded in paragraphs 20-34 that the Defendants induced Baker to breach his duties as a solicitor and the alleged actions of Baker are set out, including his prior relationship with the Plaintiffs. Paragraph 33 states,

HSAA and HSI required Baker to participate in their internal deliberations and decision-making concerning the disputes and settlement process with the Plaintiffs, and to advise them about the Plaintiffs’ approach to the negotiations and likely reactions to positions taken. They did so wrongfully, and knew, or must be taken to have known, that Baker would be breaching his solicitor’s contractual, professional and fiduciary duties owed to the Plaintiffs as a result.

[ 24 ] It is not necessary that Baker be a party to this action; no damages are sought from him. What the pleading does, in my view, is set out the role Baker allegedly played in the events and it is asserted that the Defendants induced Baker to breach the duties he owed, resulting in damages to the Plaintiffs. It is not plain and obvious that this claim has no chance of success. The motion to strike as disclosing no reasonable cause of action must fail.

Claim for breach of fiduciary duty ought to be struck as there is another proceeding elsewhere, Court file No. CV-11-00436090

[ 25 ] The Defendants argue that the above-noted action makes substantially the same allegations against Baker as are found in the Statement of Claim in the within action so the case at bar ought to be stayed or struck.

[ 26 ] Rule 21.01(3)(c) states that a motion may be brought to stay if there is another proceeding pending between the same parties in respect of the same subject matter. I have reviewed the Statement of Claim in the action against Gardiner Roberts LLP and Ash Baker. Clearly, the parties in that action are not the same as the parties in the case before me. While some of the events giving rise to the claims in the action before me are common to the other action, the claims against the law firm and Baker as lawyer are different. I do not agree that the other proceeding is the same subject matter.

[ 27 ] In Farris v. Staubach Ontario [iv] Justice Lederman stated:

A stay of proceedings should only be ordered in the clearest of cases, where the party seeking the stay can clearly demonstrate that (1) continuing the action would cause substantial prejudice or injustice to the moving party (not merely inconvenience and expense) and (2) the stay would not cause an injustice to the responding party…Factors to be considered in determining prejudice include: the likelihood and effect of the two matters proceeding in tandem in two different forums; the possibility and effect of different results; the potential for double recovery; and the effect of possible delay.

[ 28 ] In the case before me, there is no evidence of any prejudice or injustice that would be caused to the moving parties by allowing the case before me to proceed. In my view, the submission of the moving party on this point is without merit. This ground must fail.

Conspiracy Claim

[ 29 ] The Statement of Claim pleads damages for “tortious conspiracy to injure the Plaintiffs by unlawful means”. Paragraph 49 claims that the actions of the Defendants in inducing the breach of duty of good faith and breach of Baker’s fiduciary duties were unlawful and this caused injury to the Plaintiffs.

[ 30 ] While counsel for the Plaintiffs submits that the conspiracy pleading is not a mere duplication of the other tort claims because the remedies are different, that is not an answer to the submissions of the moving parties that the proper elements have not been pleaded. Normart Management v. West Hill [v] states that in claims of civil conspiracy, the Statement of Claim must set out the facts and point to specific tortious acts which are independent of the breach of contract already alleged.

[ 31 ] In the case before me, the Statement of Claim does not set out the agreement to conspire, what the purpose of the alleged conspiracy was and the specific acts which are alleged to have been done by the alleged conspirators to effect the conspiracy nor does it state with clarity and precision the injuries occasioned to the Plaintiffs by this conduct. In short, it does not satisfy the requirements of pleadings for conspiracy claims. As Finlayson J.A. stated in Normart , “The factual basis for and the damages flowing from the breach of the agreement and the so-called conspiracy to injure are one and the same.” From reading the current Statement of Claim, that is the same situation in the case at hand. The conspiracy claim is struck with leave to amend.

No cause of action for tortious interference with economic relations

[ 32 ] The moving party argues that the elements of the tort of unlawful interference with economic relations have not been pleaded. The Plaintiffs deny this and submit that the pleading is quite specific concerning the alleged actions of the Defendants underpinning this claim. In my view, paragraphs 50 through 53 set out the basis of the claim for intentional interference with economic relations. When the Statement of Claim is read as a whole, the basis for this claim is set out and, in my view, the Defendants can plead to it.

Claim for punitive damages

[ 33 ] The materials of the Defendants submit the claim for punitive damages in 1(b) ought to be struck on the grounds that no reasonable cause of action exists. This issue was not addressed in argument nor in the moving parties’ factum but it was included in the relief sought. The case law is clear that based on the allegations contained in the Statement of Claim, should the court find that the Defendants did engage in such conduct, it could form the basis for an award of punitive damages: Whiten v. Pilot [vi] The punitive damage claim is not one without any possibility of success; it depends on the evidence the court finds persuasive concerning the nature of the conduct of the Defendants. As such, I am not prepared to strike this paragraph on a Rule 21 motion.

Balance of motion pursuant to Rule 25.11

[ 34 ] As I have indicated, if the moving parties wish to pursue the motion concerning striking various parts of numerous paragraphs, that portion of the motion is adjourned to be heard by a Master.

Order

[ 35 ] Paragraph 49 of the Amended Fresh as Amended Statement of Claim is struck with leave to amend.

[ 36 ] The moving party was unsuccessful on the majority of the motion argued before me. In my view, the launching of the motion was unnecessary, given the amendments undertaken prior
to the motion. The Defendants shall pay to the Plaintiffs their costs of this motion fixed in the sum of $7,500.00 forthwith.

D.A. Wilson J.

Date: 20121001

[i] Dale v. Toronto Real Estate Board 2012 CarswellOnt 896 (OSC)

[ii] Transamerica Life Canada Inc. v. ING Canada Inc . 2003 9923 (ON CA) , 68 O.R.(3d) 457 (ONCA)

[iii] Rio Algom Limited v. The Attorney General of Canada 2012 ONSC 550 () , 2012 CarswellOnt 1200 (OSC)

[iv] Farris v. Staubach Ontario Inc., 2004 11325 (ON SC) , [2004] O.J. No. 1227 (S.C.J.)

[v] Normart Management Ltd. v. West Hill Redevelopment Co., 1998 2447 (ON CA) , [1998] O.J. No. 391 (C.A.)

[vi] Whiten v. Pilot S.C.C.