SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO .: CV-11-429574
MOTION HEARD: 20120206
ENDORSEMENT RELEASED: 20120213

RE:

Raheel Jiwan Plaintiff - and- Money Express POS Solutions Inc. Defendant

BEFORE: Master D. E. Short

COUNSEL:
Ellen A.S. Low Fax: 416-644-5198
For moving defendant:

Stefan A. De Smit Fax: 416- 947-0909
For the plaintiff

HEARD: February 6, 2012

Endorsement

I. Overview

[ 1 ] This is a motion brought by the Defendant employer for an order striking out a paragraph of the Statement of Claim , which it is asserted improperly pleads a without prejudice Offer to Settle, made prior to the commencement of the plaintiff’s wrongful dismissal action

II. - The Facts

[ 2 ] The Plaintiff was terminated from his employment in May of 2011.

[ 3 ] The Defendant alleged just cause for the Plaintiff ' s dismissal and relied on a number of reasons outlined in letter given to the Plaintiff at the time of his termination (the "Termination Letter").

[ 4 ] In the same Termination Letter, the Defendant stated:

“Despite the foregoing, on a without prejudice basis and in satisfaction of all liabilities, statutory, at common law or otherwise, Monex is prepared to continue your base salary for six (6) weeks until June 28, 2011 in exchange for an executed copy of the attached full and final release.”

[ 5 ] The Plaintiff pleaded a reference to this offer in his the S tatement of Claim as follows:

“12. The Defendant offered to pay six weeks wages but without prejudice to its assertion of just cause.”

[ 6 ] On August 23, 2011, the Defendant's counsel, wrote requesting that the Statement of Claim be amended on consent to remove the reference to the “Offer to Settle”.

[ 7 ] Some weeks later a draft Amended Statement of Claim was delivered which included new heads of damage, in addition to wrongful dismissal. Specifically, the Plaintiff included damages for aggravated and punitive damages for humiliation, mental distress, and anguish in the manner of his dismissal.

[ 8 ] The draft Amended Statement of Claim retained explicit reference to the Offer to Settle at paragraph 12 and as a consequence the defendant now brings this motion.

[ 9 ] Clearly the employer contemplated the possibility of litigation arising out of this termination. Up to the scintilla of time prior to his reading his termination letter, did the plaintiff have any anticipation of commencing an action against his employer? What is the relevance of such enquiries?

[ 10 ] That issue requires an analysis of the Rule and caselaw put before me was undertaken.

III. Analysis

[ 11 ] The moving defendant relies upon rule 25.11:

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 vexatious; or

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

[ 12 ] In assessing the appropriate application of the rule, I considered four cases referred to me dealing with similar situations:

Canadian Gateway Development Corp. v. National Capital Commission [2002] O.J. No. 3167

Belsat Video Marketing Inc. v. Zellers Inc. [2003] O.J. No. 3168

Lakeside Steel Corp. v. White [2007] O.J. No. 2089

Gagne v. Smooth Rock Falls Hospital [1991] O.J. No. 3457

[ 13 ] I found the observation of Justice Pardu in Gagne particularly helpful:

14 A threat of civil proceedings must be implicit or implied in nearly every negotiation in the event that negotiations fail. John Sopinka and Sidney N. Lederman, in their edition of The Law of Evidence in Civil Cases (Toronto: Butterworths, 1974), indicate the litigious dispute must be in existence or at least contemplated before this privilege can become effective. Surely, this means that a threat of civil proceedings is in existence or is implied. [my emphasis]

[ 14 ] The analysis of Master Macleod in Belsat brings the issue before me into clearer focus. There he notes with respect to offers to settle:

21 I agree however that there should be no reference to offers to settle the litigation. It is the policy of the Court to promote voluntary settlement and the Court should jealously protect bona fide settlement discussions. This policy is clearly enunciated by Hollingworth, J. speaking for the Divisional Court in Eccles v. McCannell (1984), 44 C.P.C. 43 at p. 45 where he quotes with approval from Sopinka & Lederman Law of Evidence in Civil Cases.

"... In furthering these objectives [of compromise without resort to trial] the courts have protected from disclosure communications made with a view to reconciliation or settlement. In the absence of such protection, few parties would initiate settlement negotiations for fear that any concession that they would be prepared to offer could be used to their detriment if no settlement agreement was forthcoming."

22 In Canadian Gateway Development Corp. v. National Capital Commission [ 2002] O.J. No. 3167 , my colleague Master Beaudoin held that pleading the contents of a settlement discussion should be struck out as scandalous, frivolous or vexatious. He also cited Sopinka & Lederman with approval. The conditions under which settlement discussions will be privileged are as follows:

a) litigation must be in existence or within contemplation;

b) the communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiation failed; and,

c) the purpose of the communication must be to attempt to effect a settlement.

23 The difficulty of course is that admissions against interest not covered by privilege are admissible and may be pleaded. Further, it is not the function of a master hearing a pleading amendment motion to determine admissibility of evidence but only the propriety of pleading. No evidence was put before me concerning the nature of the alleged "settlement discussions" although a list of impugned paragraphs was set out in Schedule C to the defendant's factum . Unless the pleading is self evidently an improper reference to the contents of a settlement discussion ... it is not possible at this stage to apply the three tests outlined above. [my emphasis]

[ 15 ] I however also took guidance from two helpful decisions. In Bonneville v . H y undai Auto Canada Inc. [1988] O.J. No. 26 (" Bonneville ") Justice Sutherland addressed the decision in similar circumstances in Hartley v. J.B. Food Industries Inc ., [1986] O.J. No. 608 ; 10 C.P.C. (2d) 57 :

Mr. Justice McRae held that the letter was privileged and ought not to have been pleaded. He made it clear that in his view there were strong policy reasons to encourage employers to treat employees fairly, even if there is cause for their dismissal, and strong policy reasons to encourage settlement between parties without litigation. His final paragraph includes the following sentence:

To permit the plaintiff in this case to plead and make an issue in the trial of such a privileged document would not be in the interests of justice.

I must also add that I am not persuaded that a plaintiff, already faced with a statement that he has been terminated forthwith for a cause, can be said to have his mental distress exacerbated when, along with that statement and clearly without retreating or resiling from the assertion that the employment has been terminated for a cause, the employer makes a gratuitous offer of settlement in order to buy peace and avoid litigation. I am not able to accept the submission that in such circumstances the very offer exacerbates the situation in such a way as to make the offer pleadable because relevant to the issue of the claim for damages for mental distress.

[ 16 ] As well in Prior v. Sunnybrook and Women's College Heal t h Sciences C e ntr e et al . [2006] 17329 Master MacLeod noted after referring to the decisions in Bonneville and Hartley :

The court struck out a plea that referred to the offer. I agree with what was said in these cases and with the results. Bona fide offers to settle should not find their way into pleadings and should not be treated as admissions of liability.

[ 17 ] Counsel for the plaintiff contrasts these decisions with one of my recent decisions.

IV. Bercovitch v. Resnick

[ 18 ] In Bercovitch v. Resnick, ( 2011 ONSC 3397 ) I permitted the pleading of an alleged offer to settle. In part my justification was based on the lack of knowledge of the plaintiff that an offer to settle was even being made to him:

“Here there seems to me no statement on the face of the cover letter, let alone the bulk of the accompanying documents, to suggest that there is a current claim against the guarantors, of which Mr. Bercovitch was aware when the letter arrived, let alone a patent offer to specifically resolve those claims, as distinct from the claim against the maker of the notes.”

[ 19 ] As a master. I recognize that my decisions on many occasions are simply the start of an appeal process, to ultimately determine the appropriate resolution of the dispute which initially came before me.

[ 20 ] It is always gratifying to be upheld on appeal, as I endeavour to ensure that each of my decisions is based upon an appropriate factual analysis and interpretation of existing case law and rules.

[ 21 ] It is therefore with some trepidation that I come to the decision of Justice Kenneth L. Campbell in Bercovitch v. Resnick 2011 ONSC 5082 , a decision in which the learned justice upheld my determination at first instance .(found at

[ 22 ] Leave to appeal the decision of Justice Campbell to the Divisional Court was sought from Justice Harvison Young

[ 23 ] In refusing leave, she made the following observations at 2011 ONSC 6410 :

7 The defendants/applicants argue that there are conflicting decisions as to whether the test is a one or two part test and that this is a matter of importance warranting the attention of this Court. I disagree. In the circumstances of this case, and given the careful analysis of the motions judge, the test would clearly have been met whether under a two part or three part test.

8 I am also satisfied that the evidentiary record before the motions judge supported his conclusions. The motions judge carefully considered the policy of the new rule and applied the proper considerations to the facts before him concluding that, first of all, the plaintiff had not been contemplating litigation when the proposal was made. Second, he concluded that the fact that the documents were not delivered or marked on a "without prejudice" basis was a factor to be taken into account. The genuine purpose of the proposal was not settlement of litigation and in addition, he noted that this proposal was not even made by the defendants, but rather, by Mr. Whiting. Finally, he carefully applied the tests to the facts before him.

[ 24 ] Now in argument in this case, my Berkowitz decision is cited in support of the position that it is appropriate to allow the pleading of offers to settle, in these circumstances, which are alleged by the plaintiff to parallel those in my previous decision.

[ 25 ] However, it goes, perhaps without saying, that “circumstances alter cases”.

[ 26 ] In his decision upholding my decision in Berkowitz , Justice K. Campbell enumerated 5 key factors to be considered in such cases. My analysis of his factors in this case, directs me to a different result from that in my previous decision. I thus turn to a brief summary of his enumerated factors.

“(1) The Proposal Was Not From the Defendants”

[ 27 ] Unlike the situation in Berkowitz, the offer was on letterhead of the employer and it is clear it was being conveyed directly from them.

“(2) The Plaintiff Was Not Contemplating Litigation”

[ 28 ] Here, was the plaintiff contemplating litigation?

[ 29 ] The offer was made when the litigation was exhibit in existence in the present plaintiff had only found out of the termination in the previous paragraph of the letter handed to him. However, unlike Berkowitz, the plaintiff knew that he had been terminated and that the alleged grounds for the termination were based upon an asserted claim of “just cause"

[ 30 ] The offer was not "out of the blue" at a point in time when the plaintiff could not at least appreciate the potential for a dispute, which might ultimately arise. This was not guarantors seeking to avoid potential liability for a loan which the plaintiff had no reason to suspect, was otherwise unlikely to be paid.

“(3) No Real Compromise Offered by the Defendants”

[ 31 ] Is a real compromise offered? There is an issue as to the length of the plaintiff’s "employment" as opposed to his “connection” with the defendant as an "independent contractor".

[ 32 ] Based on the defendant’s view on that issue, the offer could arguably approach a "real compromise". If cause is ultimately established, any offer of pay in lieu of notice is an improvement.

[ 33 ] Defendant’s counsel argues as well that if a departure agreement could be reached and cause was as a consequence in the facial termination document has the beneficial consequence with respect to the unemployment insurance entitlements that flow from the manner in which the employment is terminated.

“(4) The Documents Were Not Delivered ‘Without Prejudice’ ”

[ 34 ] Here the document specifically stated that the offer was being made without prejudice.

[ 35 ] While the usual practice is to make such offers in a separate letter delivered contemporaneously, I am not satisfied that it must be in a separate document. Here, the paragraph in question can be redacted and the balance of the termination letter be produced as relevant to the issues in the action.

“(5) The Genuine Purpose of the Proposal Was Not Settlement”

[ 36 ] Unlike Berkowitz , it is not clear in my view that the paragraph. "Was not to reflect an attempt by the defendants to make an offer of compromise settlement of any potential claim or litigation that the plaintiff might be entitled to advance against them."

[ 37 ] Turning to paragraph 35, of Justice Campbell's decision. I note as well his observation that:

Of course, the question of the admissibility at trial of any alleged admissions or a knowledge meant by the defendants will be a decision for the trial judge, based upon the evidence led at trial surrounding the dealings between the parties, unencumbered by these reasons...

[ 38 ] Taking that understanding into account, and my determination that in fact, the defendant intended their document to be a without prejudice offer to settle, I see no valid reason to permit plaintiff to plead the offer made to him in this case.

[ 39 ] Returning to the observations of Justice McRae over 25 years ago in Hartley v. J.B. Food Industries Inc ., supra , I am supported by the manner in which on appeal, he considered a letter delivered by the employer, at the time the termination, reading in part, as follows:

“As you know, over the past several months we have had numerous discussions about your performance and notwithstanding such discussions you have not followed instructions.

You are hereby notified that you are relieved of your duties, effective immediately.

We have conducted an investigation into your performance and we have concluded that we are entitled to terminate your employment for cause.

However, we feel that you should be offered an opportunity to resign. Accordingly in order to prevent the expense involved in a lawsuit and without prejudice to our position that we are entitled to terminate your employment for cause, the Company is prepared to pay you the equivalent of two months’ salary.

.... This offer and the enclosed release should be reviewed with a lawyer.

If this offer is not acceptable to you your employment will be terminated for cause...”

[ 40 ] The argument at first instance, and on appeal, was that the letter was privileged and, as indicated in the letter, was written without prejudice to the position of the defendant and was, on its face, also clearly written in contemplation of litigation and in an effort to avoid litigation.

[ 41 ] He was of the view that the letter is privileged, that it ought not to have been pleaded and that the Courts would be derelict in their duty if they failed to require that privileged documents written in pursuit of early settlements not become an issue at the trial.

[ 42 ] I find persuasive his observation that followed:

“I am impressed by the fact that the letter written by the defendant employer follows almost word for word the language that the learned author Levitt, at para. 601.5 of his text prepared for commerce and industry, The Law of Dismissal in Canada , advises employers to use in making settlement offers to employees, in order to avoid the situation where the employer would be taken to have condoned the cause for which an employee is being terminated. The text of Wrongful Dismissal by David Harris also contains a similar suggestion for employers.

I think the Courts have to encourage employers to treat employees fairly, even if there is cause for their dismissal, and to encourage settlement between the parties without litigation.”

[ 43 ] My impression is that the employment litigation bar has followed this guidance for a quarter-century, and there is nothing in this case that persuades me that the practice ought to change.

V. Disposition

[ 44 ] As a consequence the motion of the moving defendant is allowed and paragraph 12 of the Statement of Claim is hereby struck.

[ 45 ] I continue however to believe that there is merit in endeavouring to settle such cases at an early stage. To permit the pleading of offers made at the outset may well deter such efforts.

[ 46 ] I am therefore awarding costs on a partial indemnity basis payable to the defendant in any event to the cause. If the parties cannot agree on an appropriate quantum I may be spoken to or they may wish to reserve that determination to the ultimate trial judge.

[ 47 ] Order to issue accordingly.

Master D. E. Short

DATE: April 13, 2012

DS/ E45