SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-433120
MOTION HEARD: DECEMBER 2, 2014

RE: Primo Paving & Construction Ltd.

v.

Prudential Elfa Management Group Inc.

BEFORE: MASTER R.A. MUIR

COUNSEL:
Brendan D. Bowles and Jay Nathwani, counsel to the lawyer for the plaintiff

Ritchie J. Linton for the defendant and the proposed substituted defendants

REASONS FOR DECISION

[1] The plaintiff brings this motion pursuant to Rules 5.04(2) and 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) for an order granting it leave to amend its statement of claim. The plaintiff seeks to substitute Elfa Realty Inc. (“Elfa Realty”) and Ocean Sands Developments Limited (“Ocean Sands”) in place of the named defendant Prudential Elfa Management Group Inc. (“Prudential Elfa”) on the basis of misnomer. Alternatively, the plaintiff requests that Elfa Realty and Ocean Sands be substituted for Prudential Elfa based on the doctrine of special circumstances.

[2] The plaintiff also seeks leave to bring this motion after setting this action down for trial, pursuant to Rule 48.04. Finally, the plaintiff seeks an order that the proposed substituted defendants pay the $750.00 interlocutory costs order made by Master Abrams on November 21, 2013.

[3] The defendant and the proposed substituted defendants are opposed to the relief sought by the plaintiff.

BACKGROUND

[4] This action arises out of the supply of services and materials by the plaintiff to an improvement located at 255 Rutherford Road South, Brampton (the “Project”). The plaintiff supplied and installed a storm sewer and a paved parking lot. The Project and the underlying property were owned by Ocean Sands.

[5] The contract documents are few in number and very basic. The first is a fax dated September 14, 2010 inviting the plaintiff to the Project site. The fax was sent to the plaintiff by Charlene Smith (“Smith”) who identifies herself as Corporate Real Estate Manager/Property Manager for Prudential Elfa.

[6] The second is a quotation from the plaintiff dated September 27, 2010 addressed to Prudential Elfa and sent to Smith’s attention. At the bottom of the quotation Smith made a handwritten notation that reads “[a]greed to and accepted on this 2nd day of November, 2010”. Smith also placed her signature under the notation along with the words “Prudential Elfa Management Group Inc. (Charlene Smith)”.

[7] The third and final contract document is a letter from the plaintiff addressed to “Ocean Sands Development c/o Prudential Elfa Management Group”. The letter is dated December 10, 2010 and provides a quotation for certain extra work. As with the September 27, 2010 quotation, Smith signed the bottom of this letter, this time acknowledging her acceptance on behalf of “Ocean Sands Development”.

[8] It appears that the plaintiff proceeded to supply the services and materials contemplated by the quotations as apparently accepted by Smith. On January 5, 2011 it issued an invoice to “Ocean Sands Development c/o Prudential Elfa Mgt Gr”. The invoice is in the amount of $250,751.63. No amounts have been paid on account of the invoice.

[9] On August 18, 2011, the plaintiff issued its statement of claim in this action. It named Prudential Elfa as the only defendant. The statement of claim seeks damages from Prudential Elfa for breach of contract and on a quantum meruit basis for unjust enrichment.

[10] A statement of defence was served on or about September 30, 2011. The statement of defence acknowledges that Prudential Elfa received a quotation from the plaintiff for the work in question. However, Prudential Elfa takes the position that the work performed by the plaintiff was incomplete, deficient and unauthorized. As a result, Prudential Elfa alleges that it has incurred additional out of pocket expenses to remedy and complete the plaintiff’s work. Prudential Elfa claims a right of set-off and states that therefore nothing is owing to the plaintiff.

[11] An examination for discovery of the defendant took place in April and December of 2012. This action was then set down for trial by the plaintiff. Its trial record was filed on August 27, 2013.

[12] What the plaintiff did not know when it prepared its quotation, or even when it issued its statement of claim, was that the Prudential Elfa corporation did not exist then and has, in fact, never existed. At one time there was an active Ontario corporation known as Elfa Management Group Inc. It was controlled by Ermidio Alves (“Alves”). Alves also controls Ocean Sands and Elfa Realty. However, the registration for Elfa Management Group Inc. was cancelled on February 3, 2007 and has never been revived.

[13] Of course, the plaintiff could have performed searches in order to obtain the correct name of the party it was claiming against and to confirm the name of the property owner. However, as the plaintiff’s lawyer has candidly admitted, those searches were simply overlooked and not carried out.

[14] It appears that in July 2013, Alves learned from his corporate lawyer that Prudential Elfa did not exist. He advised Mr. Linton of this fact. Mr. Linton then took advice as to what his obligations were with respect to this litigation. He then, quite properly, advised the plaintiff’s lawyer of the non-existence of Prudential Elfa. It was only then that the plaintiff’s lawyer requisitioned the appropriate searches.

[15] The plaintiff’s lawyer subsequently reported this matter to his liability insurer. The plaintiff’s motion record was served on May 16, 2014. This motion was subsequently adjourned on consent and ultimately heard by me on December 2, 2014.[^1]

MISNOMER

[16] The plaintiff relies primarily on the doctrine of misnomer in support of the relief it is seeking on this motion.

[17] I have been guided on this motion by the summary of the law of misnomer as set out in my decision in Mohabir v. Mohabir, 2014 ONSC 5484 (Master) at paragraphs 13-15. Those paragraphs read as follows:

13 The law relating to misnomer has been carefully considered in recent years by the Court of Appeal. See Ormerod (Litigation Guardian of) v. Strathroy Middlesex General Hospital, 2009 ONCA 697 and Spirito v. Trillium Health Centre, 2008 ONCA 762. Misnomer requires a finding that the litigation finger be clearly pointed at the intended defendant. Would a reasonable person receiving and reviewing the statement of claim, in all the circumstances of the case, and looking at it as a whole, say to himself or herself “of course it must mean me, but they have got my name wrong”? The Court of Appeal adopts this test at paragraph 12 of Spirito, where the court states as follows:

12 In Dukoff et al. v. Toronto General Hospital et al. (1986), 1986 2648 (ON SC), 54 O.R. (2d) 58 (H.C.J.), Saunders J. noted the practice, adopted in this case, of using fictitious names where the identity of the parties are unknown. If it was a case of misnomer, the statement of claim could be corrected by replacing the fictitious name (John Doe in that case) for the correct name, even though the correction was sought after expiry of the limitation period. He adopted the following test from Davies v. Elsby Brothers, Ltd., [1960] 3 All E.R. 672 (C.A.), at p. 676:

The test must be: How would a reasonable person receiving the document take it? If, in all the circumstances of the case and looking at the document as a whole, he would say to himself: “Of course it must mean me, but they have got my name wrong”. Then there is a case of mere misnomer. If, on the other hand, he would say: “I cannot tell from the document itself whether they mean me or not and I shall have to make inquiries”, then it seems to me that one is getting beyond the realm of misnomer.

14 It must also be noted that even if a plaintiff is successful in establishing misnomer, the court retains a residual discretion under Rule 5.04 to refuse the proposed substitutions. This part of court’s analysis on a motion like this one is described by the Court of Appeal in Ormerod at paragraphs 28 to 32 as follows:

28 The framework put forward by the appellants is correct. After finding there was a misnomer the motion judge had the discretion to refuse to permit its correction. The Rules make this apparent. Cronk J.A. in Mazzuca v. Silvercreek Pharmacy Ltd., 2001 8620 (ON CA), 207 D.L.R. (4th) 492, analyzed the wording of the two rules that deal with the court's authority to permit amendment in detail -- rules 5.04 and 26.01. She contrasted their wording to note that rule 5.04(2) uses the discretionary "may" unlike rule 26.01, which uses "shall"; she also considered the history and development of these two provisions. She said at para. 25:

• Under both rules, a pleadings amendment is not to be made if non-compensable prejudice would result. In contrast to rule 26.01, however, the language of subrule 5.04(2) imports a discretionary power rather than a mandatory direction.

29 At para. 42 she added that "proof of the absence of prejudice will not guarantee an amendment". She also cited the discussion of the inter-relationship of the two rules in Holmested and Watson, Ontario Civil Procedure, Vol. 2 (Toronto: Carswell, 1993). The current edition states at p. 5-34:

• the same threshold test applies to a motion to amend under either rule 26.01 or rule 5.04(2) and the moving party must demonstrate that no prejudice would result from the amendment that could not be compensated for by costs or an adjournment; once this threshold test is met, under rule 26.01 the granting of leave is mandatory; however, where it is sought to add parties under rule 5.04(2) the court has to discretion whether to allow the amendment, notwithstanding that the threshold test is satisfied

30 While the authors refer only to "adding" parties, the permissive "may" in rule 5.04(2) grammatically applies to the correction of the name of a party incorrectly named in exactly the same way as it does to the addition, deletion, or substitution of a party.

31 As I see it, as the scope of what the courts treat as a misnomer broadens, it is appropriate to take a wider view of the court's discretion to refuse the correction of a misnomer. A "classic" misnomer, one in which the claim contains a minor spelling error of the defendant's name and is personally served upon the intended but misnamed defendant, prompts the application of a standard historically developed to remedy mere irregularities. Now that the concept of "misnomer" has been broadened to apply to a wider range of situations, the standard used to permit its correction should take into account the extent of its departure from mere irregularity in all the circumstances of the case.

32 The factors the motion judge applied in this case, whether the defendant was misled or was unduly prejudiced, are undoubtedly deserving of the greatest weight. As a general principle, these factors should be determinative. A general principle, however, is not an inflexible rule. Where the mistake in naming the defendant involves more than a mere irregularity or in any particular case with exceptional circumstances, the court may exercise its residual discretion under the rule to refuse to permit its correction. It may well be that the motion judge took a narrow view of his residual discretion to refuse to permit the correction of the misnomer. However, I am satisfied he realized he had a residual discretion since the factors he applied are broader than the rule's threshold of prejudice that cannot be compensated by costs or an adjournment. While the motion judge in this case might have inferred that the plaintiffs, after learning Dr. Graham's identity, did not resolve to proceed against her until July 2008, he did not make that inference

15 Paragraph 32 of Ormerod makes it clear that prejudice to the proposed substituted defendants is the most important factor on this part of the analysis. However, the court may consider other factors when exercising its discretion, such as significant unexplained delay in moving to amend, the public policy reasons supporting adherence to established limitation periods and the lack of notice to proposed substituted defendants. See O’Sullivan v. Hamilton Health Sciences Corp., 2011 ONCA 507 at paragraph 3.

ANALYSIS

[18] I am satisfied on the evidence before the court that the plaintiff has met the initial test for establishing misnomer. This motion involves a very unusual set of circumstances. The defendant corporation does not exist and never has. However, the plaintiff and the defendant’s representatives operated at all relevant times under the mistaken belief that Prudential Elfa did exist. Correspondence was prepared using the Prudential Elfa name. Obligations appear to have been entered into purportedly on behalf of Prudential Elfa. In 2010, for example, Ocean Sands entered into a property management agreement with Prudential Elfa. The plaintiff issued a statement of claim naming Prudential Elfa as the contracting party. Prudential Elfa then defended the action on the same basis.

[19] However, we now know that there is no such corporation as Prudential Elfa. The plaintiff could not have entered into a contract with Prudential Elfa. Similarly, the plaintiff could not have entered into a contract with Elfa Management Group Inc. as its registration was cancelled in 2007 and has not been revived.

[20] In my view, is clear from the evidence that the plaintiff had to have entered into a contract with one or more of the Alves corporations. Materials were supplied and services were performed on the property owned by Ocean Sands, a corporation controlled by Alves. Employees of Alves controlled corporations purported to enter into contracts, sent and received correspondence and were produced for discovery. There is certainly some evidence that Ocean Sands may be the proper contracting party as the plaintiff’s quotations are directed to Ocean Sands care of Prudential Elfa and the quotation for extra work was signed on behalf of “Ocean Sands Development”. The plaintiff’s invoice is directed to “Ocean Sands Development c/o Prudential Elfa Mgt Gr”. It is Ocean Sands, as owner, that appears to have been the ultimate beneficiary of the plaintiff’s work.

[21] The possible involvement of Elfa Realty is less clear. However, the evidence before the court reveals that there are currently only two validly subsisting Ontario corporations controlled by Alves. Those corporations are the two proposed substituted defendants, Ocean Sands and Elfa Realty. Much of the correspondence between the parties involved an entity controlled by Alves with the word “Elfa” in its name. Moreover, Elfa Realty once used the business name “Prudential Elfa Realty”.

[22] In my view, the root of the difficulty presented by this motion is the fact that Alves was mistakenly operating a business using the name of a non-existing entity. I accept that this was a genuine mistake by Alves but it was certainly not the fault of the plaintiff. It is true that the plaintiff’s lawyer should have conducted the usual searches before issuing the statement of claim. However, in my view it is no answer for Alves to now take the position that the plaintiff should never have relied to any extent on misinformation coming from Alves’ employees and his business operations.

[23] I have set out above the question to be asked by the court when applying the doctrine of misnomer, as first articulated by Lord Justice Devlin in the English Court of Appeal. Would a reasonable person receiving and reviewing the statement of claim, in all the circumstances of the case, and looking at it as a whole, say to himself or herself “of course it must mean me, but they have got my name wrong”?

[24] It is my view that under the very peculiar circumstances of this motion, this question must be answered by assuming that the true state of affairs regarding the Alves corporations was fully known to the person reading the statement of claim. To do otherwise would allow the responding parties to benefit from their own mistake. A person so informed would know that Prudential Elfa could not have been the proper defendant. It never existed. Such a person would also know the correct defendant could not have been Elfa Management Group Inc. Its registration had been cancelled in 2007. The possible defendants could only have been Elfa Realty and Ocean Sands. A properly informed person reading the statement of claim would have to know that the claim was directed at those corporations. I am therefore satisfied on the evidence that the proposed substituted defendants are the parties the plaintiff intended to name in this action. In my view, the test for misnomer has been met given the unusual facts before the court on this motion.

[25] Of course, that does not end the inquiry. The court retains the discretion to refuse to permit the amendments. In exercising this residual discretion, the court’s key consideration is prejudice to the proposed substituted defendants but other relevant factors may also be considered.

[26] In my view, there will be no non-compensable prejudice to Elfa Realty and Ocean Sands. They will be fully able to defend themselves at trial. They have known about this claim from the outset and it has been fully defended. Documents have been preserved and exchanged. Examinations for discovery have taken place and transcripts are available. There is no suggestion from the proposed substituted defendants that witnesses are unavailable or cannot be located.

[27] Elfa Realty and Ocean Sands suggest that they will suffer actual prejudice. Alves identifies negative consequences to Elfa Realty related to its brokerage licence if it is named as a defendant in a lawsuit. The proposed substituted defendants also suggest that the potential for liability is a form of prejudice, especially when the proposed substituted defendants have assets and Prudential Elfa does not. Finally, the proposed substituted defendants argue that the loss of a potential limitation defence is prejudicial to them.

[28] In my view, none of this amounts to the kind of prejudice contemplated by the applicable authorities. The prejudice the court is concerned with on motions such as this is with respect to the ability of a party to defend itself at trial. Potentially negative consequences to Elfa Realty’s business are not relevant to this question. It is safe to assume that there are potentially negative consequences every time a business is sued. Potential liability by itself cannot be a form of prejudice. If so, motions of this nature would never succeed. Finally, the argument that the proposed substituted defendants have lost a potential limitation defence misconstrues the true nature of misnomer. The doctrine of misnomer does not allow for the adding of parties after the expiry of a limitation period. The doctrine is based on a finding that the correct party was named from the beginning but that the plaintiff had simply got its name wrong.

[29] The proposed defendants submitted that I should take into account the lack of diligence on the part of the plaintiff and its lawyer when exercising my discretion. They argue that the plaintiff is the author of its misfortune. It failed to carry out basic corporate and real estate searches before issuing its statement of claim. While that is certainly true, it is also true that the initial error had its genesis in the misuse of the Prudential Elfa name. Moreover, misnomer motions almost always involve a mistake of some kind. I agree with the plaintiff’s argument that in a situation of misnomer, it is not an answer for the proposed substituted party to assert that the plaintiff could have discovered the proper name with the exercise of reasonable diligence. Support for this proposition can be found in Stekel v. Toyota Canada Inc., 2011 ONSC 2211 (Master); affirmed, 2011 ONSC 6507 (S.C.J.); leave to appeal refused, 2012 ONSC 2572 (Div. Ct.). In Stekel, the court allowed the manufacturer of an automobile to be added to an existing action even though the plaintiffs had only named the Canadian distributor of the vehicle. The court found that the plaintiffs had always intended to name the manufacturer and their failure to do so was a case of misnomer. The court made this finding despite the fact that the true identity of the manufacturer was easily known to the plaintiffs at the outset. All they had to do was open the door of the vehicle and read the compliance label or have a look at the owner manual. They did neither and the master at first instance nevertheless found this to be a case of misnomer. She was subsequently upheld on appeal.

[30] I therefore see no reason to exercise my discretion to refuse the proposed amendments on the basis of prejudice or based on any other factors.

RULE 48.04

[31] The parties agreed that the decision of whether to grant leave under Rule 48.04 would follow the court’s prejudice analysis under Rule 5.04(2). I have found no prejudice to the proposed substituted defendants. I am therefore granting the necessary leave under Rule 48.04.

SPECIAL CIRCUMSTANCES

[32] In view of my ruling with respect to misnomer, it is not necessary for the court to consider the plaintiff’s special circumstances argument or whether the special circumstances doctrine still exists given the ruling of the Court of Appeal in Joseph v. Paramount Canada's Wonderland, 2008 ONCA 469.

MASTER ABRAMS’ COSTS ORDER

[33] I have found that the plaintiff has satisfied the test for misnomer. It follows from that conclusion that Elfa Realty and Ocean Sands have been defendants to this action from the outset, although incorrectly identified. This action was being defended on their behalf. For this reason, it is appropriate that Elfa Realty and Ocean Sands be responsible for the payment of Master Abrams’ costs order.

ORDER

[34] I therefore order as follows:

(a) the plaintiff is hereby granted leave to bring this motion pursuant to Rule 48.04;

(b) the plaintiff is hereby granted leave to substitute Elfa Realty Inc. and Ocean Sands Developments Limited in place of the named defendant Prudential Elfa Management Group Inc.;

(c) the plaintiff is hereby granted leave to amend its statement of claim in the form of the draft amended statement of claim at Tab 3 of the plaintiff’s motion record dated May 16, 2014;

(d) Elfa Realty and Ocean Sands shall pay the $750.00 costs order of Master Abrams, jointly and severally, within 30 days; and,

(e) if the parties are unable to agree on the issue of costs, they may make brief submissions in writing by no later than January 9, 2015.

Master R.A. Muir

DATE: December 10, 2014

[^1]: I accept on the evidence that Mr. Linton and Mr. Alves always assumed that Prudential Elfa was a duly incorporated and existing corporation. They appear to have had no reason to think otherwise until July 2013 at the earliest. I certainly see no evidence to support a finding that the defendant, Mr. Alves or Mr. Linton breached any rules of procedure or practice or otherwise acted improperly in the defence of this claim.