SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-492933
MOTION HEARD: JUNE 18, 2014

National Energy Corporation, carrying on business as National Home Services

v.

Eco Energy Home Services Inc., Yuzhuo Liu, Wei Ouyang, Menon Balakrishnan and John Doe

BEFORE: MASTER R.A. MUIR

COUNSEL:
James Round for the plaintiff/defendant by counterclaim

Sahar Zomorodi for the defendants/plaintiffs by counterclaim, Eco Energy Home Services Inc., Yuzhuo Liu and Wei Ouyang

REASONS FOR DECISION

[1] The plaintiff brings this motion pursuant to Rule 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) for an order striking out certain paragraphs of the statement of defence, counterclaim and crossclaim of the defendants Eco Energy Home Services Inc. (“Eco”), Yuzhuo Liu and Wei Ouyang (collectively, the “Eco Defendants”). The plaintiff’s motion also sought similar relief in respect of the defendant Menon Balakrishnan (“Balakrishnan”), however that part of the plaintiff’s motion was resolved on a consent basis prior to the appearance on June 18, 2014.

BACKGROUND

[2] The plaintiff and Eco are competitors in the water heater business in Ontario. The plaintiff conducts its business mostly through door to door sales. The defendant Balakrishnan was an independent contractor of the plaintiff engaged in such door to door sales. After Balakrishnan’s engagement with the plaintiff ended, he joined Eco in the same or a similar capacity. The plaintiff alleges, among other things, that Balakrishnan breached certain non-solicitation provisions in his agreement with the plaintiff when he joined Eco. The plaintiff points to nine specific customers in respect of which Balakrishnan, allegedly in concert with the Eco Defendants, has engaged in allegedly fraudulent conduct to the detriment of the plaintiff.

[3] The Eco Defendants have filed a statement of defence, counterclaim and crossclaim in which they deny the plaintiff’s allegations. As part of their defence, the Eco Defendants have made broad and general statements alleging that the plaintiff has brought this action against the Eco Defendants and the unidentified defendant John Doe for tactical purposes in order to suppress competition, gain an unfair advantage in the market place and ultimately advance its own commercial interests. The Eco Defendants allege that this action is therefore an abuse of process. These allegations are found in paragraphs 9, 11, 15, 33, 35 and 36 of the Eco Defendants’ statement of defence, counterclaim and crossclaim and are referred to by the plaintiff as the “Abuse of Process Pleadings”.

[4] The Eco Defendants have also pleaded that the plaintiff has a reputation in the market place for unfair competition, misleading sales practices and misrepresentation. These allegations are found in paragraphs 42, 43 and 44 of the Eco Defendants’ statement of defence, counterclaim and crossclaim and are referred to by the plaintiff as the “Bad Character Pleadings”.

ANALYSIS

[5] The plaintiff seeks an order striking out the Abuse of Process Pleadings and the Bad Character Pleadings pursuant to Rule 25.11.

[6] I begin my analysis with the following observations. Pleadings are important. They establish the parameters of relevance and set out the matters in issue between the parties, initially for the purposes of documentary and oral discovery and later at trial. A pleading should be a concise statement of the material facts on which a party relies. Proper pleadings lay the groundwork for achieving the just, most expeditious and least expensive determination of civil disputes.

[7] Rule 25.11 provides as follows:

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.

[8] I have carefully reviewed the pleadings of the parties in their entirety. In my view, the impugned paragraphs should be struck out for the following reasons.

ABUSE OF PROCESS

[9] A pleading that contains a complete absence of material facts is considered frivolous and vexatious. See Fockler v. Eisen, 2012 ONSC 5435 (S.C.J.) at paragraph 37 and George v. Harris, [2000] O.J. No. 1762 (S.C.J.) at paragraph 20.

[10] Both sides appear to agree that two elements are necessary in order to establish abuse of process. There must be a collateral and improper purpose and a definitive act or threat in furtherance of a purpose not legitimate in the use of the process. There must be some purpose extrinsic to the litigation. See Canadian Pacific International Freight Services Ltd. v. Starber International Inc., 1992 15412 (ON SC), [1992] O.J. No. 1547 (G.D.) at pages 4 and 5. The second element of abuse of process is concisely summarized in John G. Fleming, The Law of Torts, 9th ed., (Sydney: LBC Information Services, 1998) at page 688 as follows:

In addition to the improper purpose, there must be some overt act or threat distinct from the proceedings themselves, in furtherance of that purpose . . . Were it otherwise, any legal process could be challenged on account of its “hidden agenda”.

[11] I accept that a generous reading of the statement of defence, counterclaim and crossclaim of the Eco Defendants satisfies the first element of the test in Canadian Pacific. The Eco Defendants have alleged that this action against them was initiated by the plaintiff in order to suppress competition, gain an unfair advantage in the market place and advance its own commercial interests. This, in my view, is the collateral and improper purpose alleged by the Eco Defendants.

[12] However, the Eco Defendants have failed to plead any material facts that would satisfy the second element of the test. There is simply nothing pleaded in the statement of defence, counterclaim and crossclaim that would constitute a definitive act or threat in furtherance of the improper purpose, separate from the proceeding itself.

[13] The Eco Defendants suggest that the plaintiff’s claim against the defendants Yuzhuo Liu and Wei Ouyang discloses no reasonable cause of action and constitutes an overt act in furtherance of the improper purpose of suppressing competition, gaining an unfair advantage in the market place and advancing the plaintiff’s own commercial interests. I do not agree. Regardless of whether the claim against the defendants Yuzhuo Liu and Wei Ouyang discloses a cause of action, it cannot constitute the necessary overt act because it is clearly not distinct from the proceeding itself. It is obviously a central part of the proceeding.

[14] For these reasons, I have concluded that the Abuse of Process Pleadings must be struck out as frivolous and vexatious.

BAD CHARACTER

[15] I am also of the view that the Bad Character Pleadings must also be struck out. Portions of a pleading that are irrelevant and are inserted merely for colour or to attack the character of another party may be struck out as scandalous or embarrassing. See George at paragraph 20 and Kang v. Sun Life Assurance Co. of Canada, 2011 ONSC 6335 (S.C.J.) at paragraph 71; reversed in part on other grounds, 2013 ONCA 118.

[16] Having reviewed the pleadings, it is my view that the Eco Defendants’ allegations that the plaintiff has a reputation in the market place for unfair competition, misleading sales practices and misrepresentation are completely irrelevant to the issues in this proceeding. This action involves allegations by the plaintiff in connection with nine specific customer accounts and what the plaintiff alleges was misconduct by the defendants in relation to those accounts and otherwise. The question of whether the plaintiff engages in questionable business practices can have no bearing on the outcome of this proceeding. The plaintiff may very well be the subject of many consumer complaints but there is no apparent connection between that alleged fact and the matters in issue in this proceeding.

[17] The Eco Defendants argue that the Bad Character Pleadings are a direct response to allegations the plaintiff has made in its statement of claim about the business practices of the defendant Eco. I make no comment on the whether the plaintiff’s allegations in this respect amount to a proper pleading but surely it can be no answer to such allegations for a defendant to state that the plaintiff’s business practices are just as questionable, or perhaps even worse, than the defendant’s method of operation. It would seem to me that the appropriate response is a motion to strike which I understand the Eco Defendants intend to bring in any event.

[18] In my view, the Bad Character Pleadings are not relevant and have been inserted solely for the purpose of colour and must be struck out.

[19] I accept the Eco Defendants’ argument that a defendant should be afforded every opportunity to defend itself and that a pleadings motion is not the place to determine the validity of a proposed defence. Orders under Rule 25.11 should only be made in the clearest of cases. See Quizno’s Canada Restaurant Corp. v. Kileel Developments Ltd., 2008 ONCA 644 at paragraph 16 and Wernikowski v. Kirkland, Murphy & Ain, 1999 3822 (ON CA), [1999] O.J. No. 4812 (C.A.) at paragraph 12; application for leave to appeal dismissed, [2000] S.C.C.A. No. 98. In my view, however, this is one of those clear cases. As I have concluded above, the Abuse of Process Pleadings clearly lack the necessary material facts. The Bad Character Pleadings are obviously irrelevant.

LEAVE TO AMEND

[20] Of course, any potential prejudice to the Eco Defendants can be obviated by granting them leave to amend their statement of defence, counterclaim and crossclaim in order to comply with the requirements of Rule 25.11. When an order is made striking out portions of a pleading under Rule 25.11, the court should generally grant leave to amend. Leave to amend should be denied only in the clearest of cases. See Carney Timber Co. v. Pabedinskas, 2008 63163 (ON SC), [2008] O.J. No. 4818 (S.C.J.) at paragraph 17. I can see no reason why the Eco Defendants should not be afforded an opportunity to correct the deficiencies with their pleading. It is in the interest of substantive justice that they be permitted the opportunity to do so.

THE ECO DEFENDANTS’ MOTION

[21] The Eco Defendants argued that I should seize myself of their proposed Rule 25.11 motion and that this motion should not be decided until after I have heard their motion. I see no reason why both motions cannot be heard and decided independently. This motion involves an analysis of the pleading of the Eco Defendants. The proposed motion will involve an analysis of the statement of claim. Moreover, it would not be fair to require the plaintiff to wait for the Eco Defendants to bring their motion, which might be several months from now, before a decision can be made on this motion. The plaintiff is entitled to a timely determination of its motion.

[22] I am, however, with the consent of the parties, prepared to be seized of any Rule 25.11 motion to be brought by the Eco Defendants.

ORDER

[23] I therefore order as follows:

(a) paragraphs 9, 11, 15, 33, 35, 36, 42, 43 and 44 of the statement of defence, counterclaim and crossclaim of the Eco Defendants (as set out at Schedule C to the factum of the plaintiff dated June 6, 2014) are hereby struck out, with leave to amend;

(b) I shall be seized of any Rule 25.11 motion brought by the Eco Defendants; and,

(c) if the parties are unable to agree on the issue of costs, they may make brief written submissions in writing by no later than July 18, 2014.

Master R.A. Muir

DATE: June 20, 2014