ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-10-412296
DATE: August 7, 2013
BETWEEN:
ABRAHAM JOSEPH GREEN, by his Litigation Guardian, MALKA GREEN, and ABRAHAM AND MALKA GREEN FOUNDATION
James A. Round,
for the Plainitffs/Respondents (“the Plaintiffs”),
Tel.: 416-863-1188
Fax: 416-863-0305
Plaintiffs
- and -
ABRAHAM J. GREEN LIMITED, DAVID GREEN, BARRY GREEN, DONNA GREEN, KAREN GREEN, LINDY GREEN, GREENBROOK PROPERTY MANAGEMENT LIMITED and AJG CONTROL TRUST, by its trustee, DAVID GREEN, PAUL BLEIWAS and GOODMAN AND CARR LLP
Rebecca Burrows,
for the Defendants/Moving Parties, Abraham J. Green Limited, David Green, Barry Green, Donna Green, Karen Green, Lindy Green, Greenrock Property Management Limited and AJG Control Trust (“the Green Defendants”),
Tel.: 416-979-2211
Fax: 416-979-1234
Defendants
HEARD: June 21, 2013
MASTER C. WIEBE
REASONS FOR DECISION
[1] This is a motion by the Green Defendants for leave under Rule 25.01 (5) of the Rules of Civil Procedure to deliver a rejoinder in response to the Plaintiff’s Reply. The Green Defendants allege that the said Reply raises new grounds of claims which they could not have anticipated and thus had no opportunity to respond to in their Statement of Defence. They attach a draft of the Rejoinder they propose to deliver to their Notice of Motion.
[2] The co-defendants, Paul Bleiwas and Goodman and Carr LLP, were served with the motion material and consent to the delivery of the said rejoinder.
[3] The Plaintiffs object to the delivery of a rejoinder. They argue that the Reply does not raise “new and important” matters that would cause prejudice to the Green Defendants if leave to deliver a rejoinder was not granted, and does not raise issues that could not have been reasonably anticipated by the Green Defendants in reading the Statement of Claim. They argue that the onus is on the Green Defendants to meet the quite restrictive test for leave to deliver a rejoinder, and that this onus has not been met.
Test for leave to deliver a rejoinder:
[4] There is relatively little case authority as to when leave to deliver a rejoinder should be granted. The jurisdiction for such leave is in Rule 25.01(5): “No pleading subsequent to a reply shall be delivered without the consent of the opposite party or leave of the court.” I agree with Mr. Round that this rule places the onus on the defendant to establish the grounds for leave, and that this is a high onus since the presumption of the rules is that pleadings should close with the reply. Even the occasion for a reply is contemplated as being quite narrow under Rule 25.10, as that rule prohibits a reply other than in the two specified circumstances.
[5] The initial case in Ontario concerning rejoinders was Regal Films Corp. (1941) Ltd. v. Glens Falls Insurance Co., [1945] O.W.N. 130 (Ont. Master). In this case the plaintiff in responding to the defendant’s defence that notice had not been given under the relevant insurance policy, raised pleas of waiver and estoppel for the first time in its Reply. In granting the defendant leave to deliver a rejoinder, Master Conant stated that while leave to deliver a rejoinder should be granted “only where good cause is shown and under exceptional circumstances,” leave should be given where the reply introduces “new and important matter, particularly the pleas of waiver and estoppel and events subsequent to the occurrence of the loss, and . . . it would be unreasonable to conclude that the defendant should have anticipated such matter and should have pleaded thereto in its statement of defence. . .”
[6] In Firestone v. Firestone [1970] O. J. No. 2111, Justice Henry reiterated this statement from Regal Films as being the governing test, although he was not asked to and did not rule on the application of that test to the facts of that case. He was simply asked to determine whether a rejoinder fell within the boundary of the leave already granted.
[7] Master Clark in Toronto (City) Non-profit Housing Corporation v. Toronto Electric Commissioner (1986) 7 C.P. C. (2d) 305 described the test as requiring a separate and distinct third factor, namely proof that the reply introduced events subsequent to the occurrence of the loss in respect of which the action was brought. He described the test as requiring the following: (1) proof of the introduction of new and important matters; (2) proof of the introduction of events subsequent to the occurrence of the loss in respect of which the action was brought; and (3) proof that it would be unreasonable to conclude that the defendant should have anticipated such matters and have pleaded to it in the statement of defence. It was this three-pronged test that was referred to in the two later cases in Ontario that concerned rejoinders: Bank of Montreal v. Freer 1990 CarswellOnt 1848 (Ont. Sup.Crt.) and Patel v. Groupon Inc. 2012 ONSC 1799 (Ont. Sup.Crt.). In the Patel case, the test is also described as being disjunctive, not conjunctive, although that may have been an oversight.
[8] Counsel argued, and I agree, that there really is no three-pronged test, despite these later rulings. The initial case, Regal Films, described the factor of proving a pleading of events subsequent to the loss as being an example of what “new and important matter” means. Master Clark in Toronto (City) Non-profit Housing Corporation, with respect, did not accurately reiterate the test as described in the earlier two cases. Justice Costello in Freer did not apparently have the earlier two cases before him. Justice Strathy in Patel did not in the end find it necessary to deal with the issue of rejoinder and therefore his decision is of limited authority on this issue. Following Regal Films Corp. and Firestone, I therefore find that the applicable test for the granting of leave to deliver a rejoinder is as follows:
There must be proof that the reply introduced new and important matter, such as new pleas and events subsequent to the loss in question, and
There must be proof that it would unreasonable to conclude that the defendant should have anticipated such pleas and events and pleaded thereto in the statement of defence.
[9] There was then argument as to what “new” means for the purpose of this motion. Ms. Burrows argued that “new” simply means that the matter was not raised in the Statement of Claim. Mr. Round argued that this cannot be the case, as the Rules authorize replies for new “versions of the facts,” new “matters” that would surprise the defendant and new “issues” not previously pleaded, and nevertheless impose a rebuttable prohibition against pleading after replies. He argued that the “new” must therefore mean a “new ground of claim,” which cannot be raised in reply. I agree with this argument, particularly after I reviewed the above noted cases. In all of the ones which gave leave for a rejoinder the reply pleaded a new claim, such as waiver and estoppel (see Regal Films Corp. and Toronto (City) Non-profit Housing Corporation), or an entirely new set of facts justifying the existing claimed relief (see Firestone).
[10] There was also argument as to what “important” means. Ms. Burrows argued that it should mean no more of a threshold than “fully defining” the issues “to assist the smooth operation of the discovery process and the trial.” Mr. Round argued that, given the high onus on such a motion, the “importance” threshold must also be high. It must mean that the new matter must potentially jeopardize or prejudice the defendant’s case, procedurally or substantively. I agree with Mr. Round. Prejudice is not stated in the cases filed to be a precondition of this part of the test. Indeed, the Patel case, while of limited authority on this point, states that prejudice is a factor to be considered in addition to the cases outlined in the previous court decisions on this point. Nevertheless, for the word “important” to have any meaning, the new matter raised in the reply cannot be collateral or of minor importance to the defence. It must pose some threat to the defendant’s position in the case.
[11] As to the second part of the test, in my view this is more of an adjunct to the first part of the test than a stand-alone requirement. The court simply requires that the alleged new matter really be “new.” If the alleged new matter is something that the defendant should reasonably have anticipated and pleaded to as a part of its statement of defence in response to the statement of claim, the court should not allow a rejoinder. As Mr. Round argued, this is to avoid the unfairness of “double pleading.”
The underlying action:
[12] The underlying action concerns essentially a dispute between two sides of the family of retired businessman Abraham J. Green, who is referred to throughout the material as “Al.” Al created a successful real estate development and property management business, and was also a philanthropist who carried out charitable activities through certain charitable foundations. In 1997, Al put in place certain arrangements (the “1997 Arrangements”) as to what was to be done with his business and assets, and appointed his second wife, Malka Green (“Malka”), as his Attorney along with certain others. In 2006, Al put in place certain corporate, trust and charitable transactions and testamentary arrangements (“the 2006 Arrangements”) that amended the 1997 Arrangements and that involved the Green Defendants, who are children of Al’s first marriage. It is undisputed that Al is now incapacitated. It is hotly disputed as to when that happened.
[13] In her capacity as Al’s Attorney, Malka commenced this law suit in 2010 seeking orders overturning the 2006 Arrangements alleging that at the time of the 2006 Arrangements Al was incapacitated and that the children of Al’s first marriage (the defendants David, Barry, Donna, Karen and Lindy Green, the “Green Children”) had taken advantage of him. Malka also sued Al’s lawyers who were involved in the 2006 Arrangement, Paul Bleiwas and Goodman and Carr LLP (“the Lawyers”), for negligence and breach of duty in respect of those arrangements. Both the Green Defendants and the Lawyers defended the action, and the plaintiffs delivered a Reply to the Statement of Defence of the Green Defendants.
[14] To say that the existing pleading are complicated and lengthy is an understatement. The Statement of Claim is 58 pages (91 paragraphs); the Statement of Defence of the Green Defendants is 54 pages (83 paragraphs); the Statement of Defence of the Lawyers is 29 pages (89 paragraphs); and the Reply of the plaintiffs is surprisingly 37 pages (86 paragraphs), namely longer than the pleading of the Lawyers and almost 2/3 the length of the Statement of Claim and the Statement of Defence of the Green Defendants.
The proposed rejoinder:
[15] Compared to the existing pleadings, the proposed rejoinder is relatively brief, namely 7 pages (14 paragraphs) in length. The first three paragraphs are introductory and a statement of what in the Reply is denied. As such, they are of no consequence to this motion. The remainder of the proposed rejoinder, the substantive portion, is divided into four parts. I will deal with each part separately.
a) “Personal Investment Portfolio”:
[16] The Green Defendants allege in paragraphs 4 to 10 of the proposed rejoinder that the Reply raises a new ground of claim in that it alleges that, based on and on account of the Lawyers’ Statement of Defence, the Green Defendants knew that Al’s Personal Investment Portfolio (“PIP”) had been mistakenly included in a gift by Al of equity shares in Al’s holding company, Abraham J. Green Ltd. (“AJCL”), to the Green Defendants, and that as a result of this knowledge the Green Defendants were in further breach of duty in refusing to return the PIP. The Green Defendants also purport to respond to allegations in the Reply that David and Barry Green (called “the Green Sons”) significantly depleted and liquidated the PIP to suit their own interests at the expense of Al “despite protests by Al’s attorneys,” and that a letter from the lawyer for the Green Defendants dated December 15, 2010 (which is subsequent to the Amended Statement of Claim) was a further breach of duty.
[17] Mr. Round argued that these allegations in the Reply were not so “new” as to justify a rejoinder. Concerning the issue of mistake, he pointed primarily to paragraph 1(d)(ix) of the Statement of Claim to make the argument that mistake, misrepresentation and non est factum in relation to the PIP transfer had been pleaded and should have been anticipated in preparing the Statement of Defence. He argued that the Lawyers’ pleading was just an admission and therefore not a new set of facts or a new claim.
[18] I do not agree. The new allegation here is that plaintiffs in their Reply plead that on account of the admission of the Lawyers, the Green Defendants were further liable for breach of duty in refusing to return the PIP. This is a new set of facts arising after the Statement of Claim and a new ground of claim that represents a further threat to the position of the Green Defendants and needs to be responded to.
[19] As to the allegations of depletion and liquidation, I note that in paragraph 43 of the Reply the liquidation of $5 million of the PIP to pay for AJGL’s line of credit and the threat in the December 15, 2010 lawyer’s letter are pleaded as constituting “further breaches of their [the Green Defendants’] fiduciary duties.” This is virtually an admission by the plaintiffs that these allegations are new facts or new ground of claim. In addition, I note that the addition of the pleading in paragraph 4(b) of the Reply of “despite the protests by Al’s Attorneys” concern facts not pleaded in the Statement of Claim concerning the depletion. These facts could also be viewed as adding a new ground of claim as they give a whole further level of gravity to the allegations of depletion.
[20] I, therefore, find that the allegations in paragraphs 4 to 10 of the proposed rejoinder are acceptable, and I grant leave in this regard.
b) Retractable (preference) shares:
[21] Paragraph 11 of the Rejoinder concerns the allegation in paragraph 5 of the Reply that, if Al was competent at the time of the 2006 Arrangements, he established the Control Trust and transferred the PIP under a “fundamental misapprehension and mistake as to what that would entail or how it would affect his personal entitlements.” Paragraph 5 goes on to allege that to the extent that Al relinquished control over the PIP, his shareholder loan to AJGL, his retractable shares in AJGL and his entitlement to income from his business, the Green Defendants are acting unfairly, unjustly and unconscionably in “refusing to correct that mistake and in availing themselves of the advantage it conferred upon them.” There is again a reference to the Statement of Defence of the Lawyers.
[22] Mr. Round argued that paragraph 71(c) of the Statement of Claim concerned the exchange of equity in AJGL for retractable shares and the alleged failure of the Green Sons to honour the retraction rights. He argued that the Green Defendants in fact responded to the allegations about the retractable shares in paragraph 60(a) of their Statement of Defence, and to the allegations about the shareholder loan in paragraph 74(c) of their Statement of Defence.
[23] However, I notice that all of these allegations are anchored in the pleading of undue influence by the Green Defendants. What paragraph 5 of the Reply introduces is the allegation that, if Al was competent and capable of forming an intention, he did so under a “fundamental misapprehension and mistake,” and that the Green Defendants are “refusing to correct that mistake and in availing themselves of the advantage it conferred upon them.” This again was a new ground of claim that represents an added threat to the position of the Green Defendants.
[24] I, therefore, find that the allegations in paragraph 11 of the proposed rejoinder are acceptable, and I grant leave in this regard.
c) GPML management:
[25] Paragraph 12 of the proposed rejoinder responds to paragraphs 44, 45, 46, 47 and 48 of the Reply. These paragraphs of the Reply allege that GPML, a property management company owned by companies controlled by the Green Defendants, entered into lucrative and uncompetitive contracts for the management of the Control Trust properties without tender. These paragraphs allege that the Green Sons set up GPML to take over management of the properties and to arrogate all management income to the Green Sons, contrary to Al’s wishes. These paragraphs allege that Barry Green complained about not being properly compensated and that GPML was set up by the Green Sons as a vehicle to “reward” Barry Green. These paragraphs also allege self-dealing by the Green Sons.
[26] Mr. Round argued that the Green Defendants should have anticipated these allegations and pled to them in the Statement of Defence. He pointed to paragraph 13 of the Statement of Claim, which alleges that GPML was created by the Green Sons to become property manager for the Control Trust properties. He pointed to paragraph 86(r)(v)-(vii) of the Statement of Claim which alleges misconduct in relation to the costs and loans allocated to one property managed by GMPL, 225 Davisville. He pointed to paragraph 74(p)(iii) and 74(p)(v) of the Statement of Defence of the Green Defendants and argued that the Green Defendants there addressed the issues of favoritism in relation to two of the properties GMPL manages, 77 Davisville and 225 Davisville.
[27] I do not agree with Mr. Round in this argument. The allegations of self-dealing, income arrogation and compensation manipulation that appear in paragraphs 44, 45, 46, 47 and 48 of the Reply are of a different class, nature and level of particularity than the more general allegations pleaded in relation to GPML in the Statement of Claim. These paragraphs could not have been reasonably anticipated by the Green Defendants in reading the Statement of Claim and represent another threat to their position in the action.
[28] I, therefore, find that the allegations in paragraph 12 of the proposed rejoinder are acceptable, and I grant leave in this regard.
d) Control Trust:
[29] Finally, paragraphs 13 and 14 of the proposed rejoinder respond to paragraphs 52, 55 and 58(a) – (c) of the Reply. Paragraphs 52 and 55 of the Reply describes in detail that Al expected to receive income from the Control Trust, that the Control Trust has provided him with neither income nor an accounting, that the Green Sons misled Al into believing that he would receive income from the Control Trust in the event of his incapacity, and that the Green Sons breached their fiduciary duties to Al as a result. Paragraph 58 of the Reply denies the allegation in the Statement of Defence that the Control Trust contains the three certainties and is therefore valid. The part of this paragraph that is addressed by paragraph 14 of the proposed rejoinder is the part which alleges that the Lawyers’ acknowledgment (in their Statement of Defence) of the erroneous transfer of the PIP is a ground for the trust failing on account of uncertainty as to subject.
[30] Mr. Round argued that the Statement of Claim gave ample warning of these allegations in the Reply, and that the Green Defendants therefore should have been addressed these issues in their Statement of Defence. In support of this position, he pointed to paragraph 16(b) and 71(h) of the Statement of Claim which pleaded that the Control Trust was a sham. He pointed to paragraphs 1(d)(vii) and (viii) of the Statement of Claim which pleaded that the Green Sons were operating the Control Trust unlawfully, negligently and in breach of duty. He pointed to paragraph 81(g) of the Statement of Claim which pleaded that the Lawyers were negligent in counseling Al that he was in control of the Control Trust when he was not. He pointed to paragraph 89 of the Statement of Claim which pleaded that the Green Sons were using Al’s money to advance their personal interest at the expense of the Control Trust.
[31] I disagree with Mr. Round. These portions of the Statement of Claim do not address the specific allegations in paragraphs 52 and 55 of the Reply about the Green Sons allegedly misleading Al that he was going to receive an income from the Control Trust. This is what is addressed in paragraph 13 of the proposed rejoinder. Nor do those portions of the Statement of Claim raise the issue of the alleged mistaken transfer of the PIP being a ground for declaring the Control Trust uncertain as to subject matter, which is the issue addressed by paragraph 14 of the proposed rejoinder. These are new facts or new grounds of claim that represent an added threat to the position of the Green Defendants.
[32] I, therefore, find that the allegations in paragraphs 13 and 14 of the proposed rejoinder are acceptable, and I grant leave in that regard. In short, I grant leave to the Green Defendants to deliver the entirety of their proposed rejoinder.
Costs of this motion:
[33] If the parties are unable to agree on costs of this motion, then brief written submissions of no more than two pages each (plus a Costs Outline) may be served and filed by the Green Defendants by August 23, 2013, and by the plaintiffs by August 30, 2013. The Green Defendants may file a brief reply by September 6, 2013.
MASTER C. WIEBE
Released: August 7, 2013
COURT FILE NO.: CV-10-412296
DATE: August 7, 2013
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Abraham Joseph Green, by his Litigation Guardian, Malka Green, and Abraham and Malka Green Foundation
Plaintiffs/Responding Parties
- and -
Abraham J. Green Limited, David Green, Barry Green, Donna Green, Karen Green, Lindy Green, Greenrock Property Management Limited and AJC Control Trust,
Defendants/Moving Parties
REASONS FOR DECISION
Master Charles Wiebe
Released: August 7, 2013