COURT FILE NO.: 07-CV-9338 CMA1

MOTION HEARD: 20120810

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2054509 Ontario Limited, Anthony Nehme, Joseph Nehme, Teddy Pierre Daher, Boulos Daher and Henriette Daher, Defendants

AND:

John Paul Corrent, Third Party

BEFORE: Master Pope

COUNSEL:
Maria Marusic, Counsel for the Defendants, Boulos Daher and Henriette Daher

Mason Greenaway, Counsel for the Third Party, John Paul Corrent

HEARD: August 10, 2012

REASONS FOR DECISION

[ 1 ] The third party seeks to amend his statement of defence to the third party claim to plead the limitation period. The defendants oppose the motion on the basis that they will be prejudiced should the amendment be granted where costs or an adjournment cannot compensate them.

Facts

[ 2 ] This action involves a private mortgage whereby the lender advanced funds from a self-directed retirement savings plan in which the plaintiff acted as trustee.

[ 3 ] The lender granted a loan to the defendants, Teddy Daher (“Teddy”), Anthony Nehme and Joseph Nehme, (“defendants”) who are cousins, to purchase Drouillard Road property in Windsor. These defendants provided certain security in the form of mortgages over properties they owned. In particular, Teddy gave a mortgage over Lincoln Road property. Title to the Lincoln Road property was held by Teddy’s parents in trust for him. His parents are the defendants, Boulos Daher and Henriette Daher (“Dahers”).

[ 4 ] Lawyer, John Paul Corrent (“Corrent”), the third party, represented the plaintiff with respect to the loan and mortgage transactions. Corrent attended with the Dahers when they executed the mortgage documents relating to the mortgage over the Lincoln Road property.

[ 5 ] The defendants ultimately defaulted in payment on the loan.

Background

[ 6 ] The statement of claim was issued on June 15, 2007. Corrent represented the plaintiff at that time. There is no evidence as to the date it was served on the defendants; however, it was sometime between June 15, 2007 and August 3, 2007 when the Dahers filed their statement of defence.

[ 7 ] Only the Dahers defended this action. They initially retained lawyer, Gino Paciocco, who filed a statement of defence on their behalf. They pled, inter alia, non est factum – they thought they had signed a transfer of the property to Teddy; they had no independent legal advice prior to signing the documents; they were not aware they could be held liable for repayment of the loan.

[ 8 ] In June 2009, some two years after being served with the statement of claim, the Dahers retained a new lawyer, Claudio Martini (“Martini”). Martini issued a third party claim against Corrent on November 12, 2009. The third party claim seeks contribution and indemnity from Corrent for breach of fiduciary duty and negligence. The third party claim was served on Corrent on December 17, 2009.

[ 9 ] Mr. Greenaway (“Greenaway”), lawyer for Corrent, delivered a statement of defence to the third party claim on or about April 26, 2010; however, the limitation period was not pled. Corrent now seeks to amend his pleading to add that defence on the basis that the third party claim is statute barred based on the relevant provisions of the Limitations Act, S.O. 2002 (“ Limitations Act ”).

[ 10 ] Greenaway advised Martini by letter dated March 30, 2011 of Corrent’s intention to amend his statement of defence to the third party claim to plead the limitation period. Greenaway enclosed a consent form with his letter and invited Martini to examine Corrent on the limitation issue at examinations for discovery which were to be held the following day. The plaintiff provided written consent to the amendment on March 31, 2011 at examinations for discovery. Martini examined Corrent on the limitation issue at that time. Following discoveries, Martini requested a copy of the proposed amended pleading from Greenaway by letter dated April 5, 2011. Martini stated the following in that letter: “Before I consent to any amendment, I require a copy of the proposed Amended Statement of Defence.” Greenaway provided Martini with the proposed amended statement of defence the following day. The proposed pleading contained the addition of paragraph 16A only, which states as follows: “The Third Party pleads and relies upon the Limitations Act , including Section 18 thereof.” Martini did not respond to Greenaway’s request to consent to the proposed amendment.

[ 11 ] On June 7, 2011 Greenaway wrote to opposing counsel and reiterated that Corrent would be maintaining the limitation period defence and, if necessary, he would bring a motion for summary judgment. He requested that Martini advise him whether he would contest such a motion or consent to the dismissal of the third party claim.

[ 12 ] Not having heard from Martini, Greenaway served a motion for summary judgment on July 20, 2011. Thereafter, the parties consented to schedule a special motion date of January 23, 2012 for the hearing of the motion. By October 25, 2011, Martini had not served responding motion material; therefore, Greenaway requested his material by November 30, 2011. In his letter, Greenaway reiterated his position regarding the limitation defence. On October 27, 2007, Martini advised Greenaway that he would deliver responding material “in due course.” On November 30, 2011, Greenaway served his factum and book of authorities. Ultimately Martini served the responding motion material on January 18, 2012, one day late pursuant to rules 37.10(3) and (7). [1]

[ 13 ] The Dahers opposed the summary judgment motion as being premature on the basis that the Limitations Act had not been pled and, as such, there was no pleading before the court upon which the court could award summary judgment. Therefore, the motion for summary judgment did not proceed and, subsequently, Greenaway brought this motion to amend Corrent’s statement of defence to the third party claim to plead a limitation defence which was served on January 20, 2012. The motion to amend was adjourned to August 10, 2012 for the hearing.

Law

[ 14 ] Rule 26.01 is mandatory in that it permits an amendment to a pleading at any stage of a proceeding unless prejudice would result that could not be compensated by costs or an adjournment.

[ 15 ] In assessing prejudice, the courts have held that the onus is on the party opposing the amendment to establish they will suffer prejudice if the amendment is granted. However, where a limitation period has passed, there is a presumption of prejudice that cannot be compensated for by costs or an adjournment. Where the limitation period has passed, the moving party must demonstrate why, on the facts of the case, the court should not apply the normal rule that the presumption of prejudice flowing from the loss of the limitation period is determinative. In that situation, the court will consider special circumstances that would lead to a conclusion that the presumption of prejudice should not apply [2] .

Parties’ Positions

Dahers’ Position

[ 16 ] There is a presumption of prejudice that cannot be compensated for by costs or an adjournment. Corrent waited over two years from December 2009, when he was served with the third party claim, to January 2012 to bring this motion and within that time the limitation period for the Dahers to commence an action against Paciocco expired.

[ 17 ] If the amendment is permitted , the Dahers will suffer non-compensable prejudice because they will lose their remedies against both Corrent and Paciocco, their first lawyer who filed the statement of defence on their behalf. Specifically, if the amendment is permitted, their action against Corrent may be statute barred. That is the relief sought by Corrent in his motion for summary judgment. Furthermore, the limitation period to sue Paciocco for negligence in failing to advise them of their right of action against Corrent expired in June 2011, two years from the time they retained Martini in June 2009.

[ 18 ] Given that Corrent had not pled a limitation defence, the Dahers had no basis upon which to add Paciocco as a third party. Now that the limitation period to commence action against Paciocco has expired, if Corrent is permitted to amend his defence, the Dahers will suffer non-compensable prejudice as any future attempt to sue Paciocco will be defeated as being statute barred.

Corrent’s Position

[ 19 ] There would be no non-compensable prejudice to the Dahers if the amendment was granted as they have been aware of the proposed amendment since March 2011, which was prior to the expiration of any limitation period in June 2011 to commence an action against Paciocco.

[ 20 ] The Dahers had sufficient time to sue Paciocco once they knew on March 30, 2011 that Corrent intended to rely on the limitation defence. The Dahers examined Corrent on the limitation issue on March 31, 2011 and they had a copy of the proposed amended pleading on April 6, 2011.

[ 21 ] Furthermore, the Dahers never advised Corrent that they were taking the position that they would not sue Paciocco until Corrent formally amended his defence. The Dahers were provided with the grounds for this motion on July 15, 2011 when Corrent served his motion for summary judgment. Moreover, the Dahers have had Corrent’s factum which states the basis of the limitation defence since November 30, 2011.

[ 22 ] Lastly, the Dahers cannot rely on self-created prejudice to defeat Corrent’s motion by failing to sue Paciocco within the limitation period when they possessed the requisite knowledge to make a claim against their former lawyer and chose not to do so.

Analysis

[ 23 ] There is no dispute between the parties that the limitation period for the Dahers to commence an action against Paciocco expired in or about June 2011, two years from the time they retained Martini [3] .

[ 24 ] Given the expiration of that limitation period, there is a presumption of prejudice to the Dahers if Corrent is permitted to amend his defence.

[ 25 ] As such, Corrent must demonstrate why, on the facts of the case, this court should not apply the normal rule that the presumption of prejudice flowing from the loss of the limitation period is determinative.

[ 26 ] I must now consider any special circumstances that could lead to a conclusion that the presumption of prejudice should not apply.

[ 27 ] The Dahers had knowledge of Corrent’s intention to amend his defence to plead the limitation period on March 30, 2011, which was prior to the expiration of the limitation period. They examined Corrent on this issue on March 31, 2011 and they were in possession of the proposed amended statement of defence in early April 2011. Martini acknowledged that the limitation issue had been raised by Greenaway although it had not been formally pled. In my view, Martini led Greenaway to believe that he would consent to the amendment when he stated the following in his letter of April 5, 2011: “Before I consent to any amendment, I require a copy of the proposed Amended Statement of Defence.” Further, in that same letter, Martini acknowledged the potential liability of Paciocco if the action against Corrent is statute barred and that the “ultimate ‘payor’ will be the same.” Presumably, he was suggesting that LawPro would be the ultimate payor.

[ 28 ] At this time in early April 2011, in my view, Greenaway had no reason to bring a motion to amend Corrent’s defence based on the discussions and correspondence between counsel.

[ 29 ] However, Martini did not respond to Greenaway’s requests to consent to the amendment, particulars of which are as follows:

a) Greenaway’s letter of March 30, 2011;

b) Martini did not sign or respond to the Consent form that Greenway provided to him in the March 30 th letter;

c) Martini did not advise Greenaway of his position following examinations for discovery on March 31, 2011;

d) Martini did not respond after Greenaway provided him with the proposed amended defence on April 6, 2011, as requested by Martini;

e) Greenaway’s letter of June 7, 2011 when he reiterated the intention to rely on the limitation defence and asked whether Martini would consent to the dismissal of the third party claim.

[ 30 ] Essentially, some ten months passed between March 30, 2011, when Martini had notice of Corrent’s intention to amend his defence, to January 18, 2012 when Martini served the responding material, that Martini did not respond to Greenaway. It was at that time in January 2012 that Greenaway learned of the Daher’s position; that is, that no formal amendment to plead the Limitations Act had been made and; therefore, there was no basis to grant summary judgment of the third party action against Corrent.

[ 31 ] In my view, had Martini consented to the amendment of Corrent’s defence, he would have had sufficient time to add Paciocco as a third party within the applicable limitation period. There was clearly no issue raised by Martini that the request to amend Corrent’s defence was made within the applicable limitation period.

[ 32 ] The Dahers have provided no explanation why they did not consent to the proposed amendment, nor is there any explanation for the delay in responding to Greenaway’s request. On the other hand, there is ample evidence of Corrent’s reasonable and timely attempts to deal with the proposed amendment in advance of the expiry of the limitation period for the Dahers to have added Paciocco as a third party to this action.

[ 33 ] The Dahers rely on Churly v. Budnick (1997), 1997 12260 (ON SC) , 34 O.R. (3d) 729 (Ont.Master) where Master Peppiatt refused to grant the defendant leave to amend the statement of defence. He found that to do so would cause non-compensable prejudice to the plaintiff as it would not be fair to the plaintiff to permit the defendant to wait so long before asserting a defence that the plaintiff would be unable to protect himself against.

[ 34 ] In my view, Churly can be distinguished from the facts of this case. In Churly , the master refused to grant the amendment because he found that the defendant had been aware of the facts that formed the basis of the motion from the time the facts occurred some seven years prior and the defendant delayed, without explanation, in raising the issue until the pre-trial conference and after the plaintiff had set the action down for trial: (see Churly , at paras. 32-34 ). Here, the issue of the amendment was raised within the applicable limitation period to add Paciocco as a third party and consent to the amendment was requested on numerous occasions with no response.

[ 35 ] Based on the facts herein, it is my view that by their own actions, the Dahers created the prejudice that they now allege was caused by Corrent. This is what has been referred to in earlier cases as “self-created prejudice.” [4]

[ 36 ] These cases stand for the proposition that where a party creates prejudice by its failure to do something it reasonably could or ought to have done, the party cannot rely on the said prejudice: (see Desjardin , at para. 21; Chiarelli , at para.15; Lapointe , at para. 56).

[ 37 ] This is not a case where the Dahers have been taken by surprise nor is this a case where Corrent’s notice of his intention to rely on the limitation defence occurred after the expiry of the applicable limitation period to add Paciocco as a third party to this action.

Conclusion

[ 38 ] Rule 26.01 is mandatory unless the opposing party establishes that there is non-compensable prejudice.

[ 39 ] As set out above, I found that there is a presumption of prejudice to the Dahers in that this motion was brought after the expiration of the relevant limitation period. However, having considered all the facts, the evidence herein and for the above reasons, it is my view that special circumstances exist to justify not applying the presumption of prejudice. Therefore, no presumption of prejudice exists and based on my finding that there has been no prejudice created by Corrent, leave is granted to Corrent to amend his statement of defence to the third party action as sought in the supplemental motion record dated January 20, 2012.

Costs

[ 40 ] Corrent is granted costs of this motion on a partial indemnity basis.

[ 41 ] Neither of the parties served costs outlines prior to the hearing of this motion; therefore, if they are unable to agree on costs, Corrent shall serve and file a costs outline and short submissions of no more than two pages double spaced within 10 days of the release of this order. The Dahers may respond by serving and filing short submissions of no more than two pages double spaced within 10 days thereafter.

Original signed by “Master Pope”

Master Lou Ann M. Pope

Date: November 28, 2012

[1] Rules of Civil Procedure , R.R.O. 1990, Reg. 94.

[2] Frohlick v. Pinkerton Canada Ltd. , 2008 CarswellOnt 66, 2008 ONCA 3 , 62 C.C.E.L., 3d 161

[3] Limitations Act , 2002, S.O. 2002, ss. 4-5

[4] Desjardin v. Mooney , 2001 CarswellOnt 564 (S.C.J.) ; Chiarelli v. Wiens (2000), 2000 3904 (ON CA) , 46 O.R. (3d) 780 (C.A.); Lapointe v. Gas Speciaux MEGS Inc. , 2008 CarswellOnt 6959 (S.C.J.)