1642279 Ontario Inc. v. SCE Construction Management Inc. 2015 ONSC 638
CITATION: 1642279 Ontario Inc. v. SCE Construction Management Inc. 2015 ONSC 638
COURT FILE NO.:08-CV-347952
MOTION HEARD: 20140319
REASONS RELEASED: 20150206
SUPERIOR COURT OF JUSTICE – ONTARIO
RE:
1642279 ONTARIO INC., FRANK LISTA, THE PLASTIC SURGERY CLINIC INC.
Plaintiffs
- and-
SCE CONSTRUCTION MANAGEMENT INC.,
TEEPLE ARCHITECTS INC., STEPHEN TEEPLE;
ROSS GILMORE, BERNARD JIN, BAUEN DISTRIBUTION INC. and DANIEL THOMPSON, TROW ASSOCIATES INC.,
And COMPOSITES GUREA, S.A.
Defendants
BEFORE: MASTER D. E. SHORT
COUNSEL: Simon Schneiderman Fax: 416 363.3100
for plaintiffs
Iain Peck & Nicola Brankly Fax: 416-366-1466
for defendant SCE Construction
Management Inc. (moving party)
HEARD: March 19, 2014
Reasons for Decision
“When all else fails, read the Contract”
I. Motion
[1] This is a motion by the defendant SCE Construction Management Inc. ("SCE") to amend its pleading by adding three paragraphs which will plead the plaintiffs' action is barred by a covenant to insure contained in the contract between SCE and the defendant 1642279 Ontario Inc. ("164").
[2] The proposed amendments to the Statement of Defence of SCE read:
“6. Most significantly, Contract required the Owner to purchase insurance for SCE which indemnified it against any liability which it might incur as a result of damage to or injury sustained to any portion of the Project. The Project is the construction of the plastic surgery clinic building in issue.
SCE states that the plaintiff, 1642279 Ontario Inc. assumed the risk of damage to the Project by agreeing to purchase SCE's insurance and therefore its claim against SCE is barred by the insurance provisions of the Contract.
SCE further states that 1642279 Ontario Inc. failed to purchase the required insurance and, as a result, SCE is entitled to indemnity for its defence costs and any damages which may be apportioned against it in this action.”
[3] The moving party asserts that the new defences SCE wishes to raise have considerable merit given the applicable law and that the plaintiffs can demonstrate no overriding prejudice to them in the event leave is granted to amend SCE's defence.
[4] As a threshold position, counsel for the Plaintiffs asked the Court to either strike out or disregard an affidavit tendered by the moving based upon an assertion that portions of that document were in breach of the prohibition against evidence of unsuccessful efforts to settle. I decline to consider the affidavit as I was satisfied that the other material before me adequately defined the relevant issues.
II. Factual Background
[5] This action arises out of problems encountered with respect to a construction project. The contractual model chosen was not the, once typical, Owner-General Contractor model (CCDC-1)but rather Construction Management model. Under these two forms of agreement the parties take on differing roles and responsibilities.
[6] The project involved the design and construction of a medical/surgical facility from which the Plaintiff, Frank Lista (“Lista”), intended to earn his livelihood as a plastic surgeon.
[7] Lista is the sole officer and director of 1642279 Ontario Inc. That company is, in turn, the sole shareholder of the plaintiff, Plastic Surgery Clinic Inc.
[8] The architect for the project was the Defendant Teeple Architects Inc.(and the defendant Stephen Teeple) .The Construction Manager was the moving Defendant SCE. Of some importance on this motion is the fact that the principal of SCE was the defendant Ross Gilmore.
[9] Lista was the representative of the Plaintiffs most in contact with all the Defendants including the architect Stephen Teeple and Mr. Gilmore.
[10] The Construction Management Contract between 1642279 Ontario Inc. and SCE was signed October 24, 2005. Under this contractual model the various trades contract directly with the owner and there is normally no privity of contract between the manager and each trade.
[11] This action involves, amongst other claims, the Plaintiffs' claim for damages for negligence in the selection and installation of the building cladding for the plastic surgery clinic. The cladding product selected was known as Parklex.
[12] One of the complaints about Parklex is the product's discoloration after installation. This defect is alleged to be worsening over time. As addressed below, the plaintiff’s assert that were the trial will be delayed by the SCE amendments and the subsequent related proceedings which would result in a further interval during which continued discoloration would occur.
III. Proceedings to Date
[13] The action was commenced in 2008 with respect to the siding issues, seeking damages of $4 million. The action was listed for trial in February 2011, and the trial is scheduled to begin on October 13, 2015. It is apparently anticipated to last 30 days.
[14] The claim was served on SCE and their defence was served in 2008. A crossclaim against SCE for contribution and indemnity was made by Teeple Architects Inc. One of the amendments sought to the defence relates to SCE obtaining indemnity from the plaintiff for costs of defending that cross-claim.
IV. What the contract says
[15] This motion turns on a General Condition found in the Construction Management Contract (CCA 5-1988) entered into by the parties. The contract in force between SCE and 164 contained, in that printed standard form, the following covenant to insure:
GC 17 INSURANCE
17.1 The Owner undertakes and agrees at his cost to maintain insurance insuring the interest of and indemnifying the Construction Manager against any liability which he might incur as a result of damage to or injury sustained by any portion of the Project. The Owner agrees that the Construction Manager may place the liability portion of such insurance with the insurer of his choice providing the premiums are competitivee or to maintain continuity in regard to completed operations coverage. [my underlining]
[16] The signed copy of the CCA-5 contained in the moving parties motion record has a line drawn through the underlined portion above and a handwritten annotation “deleted by Supplementary Conditions”. Regardless of when that annotation was made the fact is that the parties agreed to a number of modifications to the standard form contract when it was executed. Significantly, the amendment to any contractual right of SCE to place such insurance.
[17] In any event, eighteen pages of “Amendments” are annexed to their agreement with specific modifications made to most of the 17 GC’s. The top of every amending page contains this annotation:
Amendments to Canadian Standard Construction Management Contract Form CCA-5 made between 1642279 Ontario Inc. as Owner. and SCE Construction Management Inc. as Construction Manager. dated October 24. 2005 with respect to the construction of a medical clinic on lands located at 1421 Hurontario Street. Mississauga. Ontario
[18] Section 5 of the amendments consists of a series of enumerated amendments under the heading “ 5. GENERAL CONDITIONS OF THE CONSTRUCTION CONTRACT:”.
[19] At Page 18 of 18, with the bolding indicated below, these three amendments are set out:
GC 15 INDEMNIFICATION BY OWNER
5.15.1 Insert the words "negligence or a" after the words "which constitute" on line 6 of paragraph 15.1.
5.15.2 Delete subparagraph 15.2(c).
GC 16 INDEMNIFICATION BY CONSTRUCTION MANAGER
5.16.1 Delete paragraph 16.2
GC 17 INSURANCE
5.17.1 Delete the last sentence in paragraph 17.1.
[20] I set out below the wording of Paragraphs GC 15 and GC 16 in their unamended form with the now modified portions identified bu underlining and by bold emphasis added::
GC 15 INDEMNIFICATION BY THE OWNER
15.1 The Owner shall indemnify and hold harmless the Construction Manager, his agents and employees from and against all claims, demands, losses, costs, damages, actions, suits or proceedings by third' parties including all legal fees. costs and expenses incurred in defending such claims, that arise out of or are attributable to the performance of the Contract except any proportion thereof which are attributable to acts or omissions of the Construction Manager, his agents or employees, which constitute [negligence or a] breach of this Contract and for which the Construction Manager is liable under the terms of this Contract.
15.2 The Owner shall indemnify and hold harmless the Construction Manager, his agents and employees, from and against all claims, demands, losses, costs, damages, actions, suits or proceedings arising out of the performance of the Contract which are:
(a) attributable to a lack of or defect in title or an alleged lack of or defect in title to the Place of the Project; or
(b) attributable to the negligence of or a breach of contract by the Consultant or Owner; or
(c) attributable to the negligence or breach of contract by any Trade Contractor. [(c) deleted]
GC 16 INDEMNIFICATION BY CONSTRUCTION MANAGER
16.1 The Construction Manager shall indemnify and hold harmless the Owner, his agents and employees from and against all claims, demands, losses, costs, damages, actions, suits or proceedings by third parties that arise out of, or are attributable to the Construction Manager's performance of the Contract (hereinafter the called 'claims'), provided such claims are:
(a) attributable to bodily injury, sickness, disease or death or to injury to or destruction of tangible property;
(b) caused by negligent acts or omissions of the Construction Manager or those directly employed or engaged by the Construction Manager; and
(c) made in writing within a period of one (1) year from the date of Substantial Performance of the Project.
The Owner expressly waives the right to indemnity for claims other than those stated above.
16.2 The obligation of the Construction Manager to indemnify hereunder shall be limited to the dollar amounts which are recoverable under the insurance coverages maintained pursuant to GC 17- INSURANCE. [16.2 deleted]
IV. Delay of Discovery Examination of SCE
[21] On the motion the plaintiffs asserted that they only became aware of these contractual issues after the release of the two individual defendants, Gilmore and Teeple.
[22] The Examination for Discovery of SCE commenced on July 22, 2010. The representatives of SCE that were produced for discovery were Mr. Gilmore and one Johann Schenk, the onsite supervisor of SCE. While the SCE discovery was commenced on July 22, 2010 it concluded prematurely because SCE had not produced all of the documents they had in connection with the action.
[23] The parties agreed to adjourn the SCE examination until they delivered the balance of their productions. The plaintiffs note that despite repeated efforts to secure the timely additional productions from SCE it was not until approximately December 6, 2010 that further documentary productions from SCE were produced.
V. Questions of Cover
[24] The filed affidavit evidence of the plaintiffs indicates that until approximately the Spring of 2011, SCE took the position they had no insurance coverage available to answer the claim advanced by the Plaintiffs.
[25] At discovery in July, 2010, Mr. Gilmore deposed that while SCE had an insurance policy, the claim by the Plaintiffs was not reported to the insurer because SCE did not think there was coverage. The Plaintiffs demand for production of the said insurance policy was refused by SCE on July 22, 2010.
[26] The return of the SCE representatives for discovery was scheduled for February, 201l. However, because of scheduling difficulties the continued examination for discovery of SCE was delayed until June 1, 2011.
[27] The plaintiffs’ factum asserts that then on June 1, 2011, the date on which the Defendant SCE was scheduled to conclude the examination for discovery,
“…counsel for SCE, without any prior warning, announced that in fact SCE may have insurance coverage to answer the Plaintiffs' claims. What was unclear on June, 1, 2011 was whether the insurer was going to appoint counsel and the nature of the coverage they were going to provide to SCE. The Examination for Discovery of SCE was therefore adjourned to enable SCE to clarify these questions with the insurer.”
[28] The insurer for SCE subsequently assumed carriage of the defence for SCE and appointed new counsel as of July, 2011. The SCE discovery recommenced on October 20, 2011. Between July and October 2011, no discovery of SCE could be scheduled as new counsel was then familiarizing himself with the file.
[29] The plaintiffs submit that this action has therefore been delayed for approximately 14 months as a direct result of SCE's conduct of their defence due to their missing productions and changed counsel following the altered position on the availability of insurance coverage.
[30] They submit as a consequence:
“If the amendments are permitted as sought by SCE, they will be a prelude to a motion for summary judgment. If that motion does not proceed in a timely fashion, counsel for SCE has already said that they may ask for this action to be taken off the trial list. Thus delay to the litigation may be a direct result of the proposed amendments.”
[31] In the result, the Plaintiffs oppose the proposed amendments as they are said to be:
i) prejudicial to the Plaintiff in a manner that is not compensable in costs;
ii) that the indemnity claim advanced by SCE in paragraph 8 of the draft amended defence is in substance a claim by way of set-off improperly made and should have been advanced as a cross-claim or counterclaim.
[32] As well, they argue that, as the moving defendant consented to this matter being listed for trial, leave is required for them to bring this motion. However, it is acknowledged that when the motion involves serious matters affecting substantive rights as opposed to routine interlocutory procedural matters the merits of the requested relief become a fundamental consideration. This is so to ensure the case is fully canvassed at trial subject to any prejudice to the responding party that cannot be compensated by costs. [see Goma v. Raghunandan [2011] O.J. No. 4916]
[33] I am satisfied that the facts in this case justify leave being granted to bring this motion. I am therefore exercising my discretion to allow the substance of the motion to be considered.
VI. Issues on Motion
Issue (a): What is The Test
[34] Sub-Rule 26.01 is the relevant provision of the Rules of Civil Procedure. It states:
26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. ( my emphasis added)
[35] In Androutsos v. Noram Interiors, [1999] O.J. No. 3924 the parties were engaged in a dispute concerning the cost of a development. The defendants sought leave to amend their defence to plead that changes made by the plaintiffs increased the cost of construction of the development. Mr. Justice Nordheimer held that the test is mandatory and the onus is on the responding party to demonstrate prejudice that cannot be compensated for by costs or an adjournment. It is noteworthy that in that particular instance the plaintiff was aware of the issue being raised by the defendants through their amended pleading. In this action, the plaintiff 164 is party to the contract which SCE is asking for leave to plead and rely upon and therefore had the ability to appreciate the impact of the terms of their contact and the insurance related provisions for some time.
[36] In particular at his examination for discovery held on May 11,2010 to critical portion of the contract was specifically put to Mr Lista. The then counsel for SCE, put these questions to Mr Lista on his examination for discovery as a representative of 164:
- Q. Did you take out any insurance on this project?
A. No Oh…
- Q. Did you buy a policy at some point?
A. We did buy some insurance, but I am not sure what it was for.
- Q. Could you produce a copy of that insurance policy?
MR. SCHNEIDERMAN:
Sure. Let me first look and see if it is related to anything that is going on. I will let you know if it isn't. If I don't lead it at trial, then I will tell you what it was. Subject to that ...
Q. Well, it would have been related to the project….
Q. The reason why I am asking you is, under your construction management project with SCE, it says that:
“…The owner undertakes and agrees at his cost to maintain insurance, insuring the interests of and indemnifying the construction manager …"
you know, against several things. Is that why you took out insurance?
A. I am not sure. I believe we took a policy to cover the building while it was under construction.
- Q. Who advised you to do that?
A. Probably… [his lawyer at the time].
- Q. If the insurance policy is relevant to the issues here, let me know, then that is fine.
MR. SCHNEIDERMAN:.
Yes, I will look for it.
- Q. What about the construction manager, to your knowledge, did it provide or take out any insurance policy to cover their activities on this project?
A. I am not aware.
- Q. You are not aware. You never received a copy, as far as you are aware?
A. As far as I am aware, no.
[37] It appears to me that the plaintiff was thus in a position to address the possibility of the SCE defences being raised at least as early as 2010.
Issue (b) Does SCE Need to Demonstrate the Proposed Amendments Have Merit?
[38] SCE submits that unless the proposed new defences are untenable it does not need to show they have merit. In any event, they assert the defences clearly have merit and there are several decisions ofthe Ontario Court of Appeal and Superior Court of Justice that underscore the merit of SCE's additional defences.
[39] I agree that the law in Ontario is clear that when one party to a construction contract contracts with another party to provide insurance to cover damage to a project, the party which is obliged to purchase insurance fully assumes the risk of damage to the project. This is particularly the case when an owner, such as 164, agrees to purchase particular insurance coverage.
[40] In Greater Toronto Airports Authority Assn. v. Foster Wheeler Ltd., [2011] O.J. No. 1121; 2011 ONSC 1442 Justice J.R. Sproat made a number of observations on the question of the interpretation, and application, of 'covenants to insure'. In particular the court cited the following key excerpt from Canadian Contractual Interpretation Law, First Edition, by Geoff Hall (at p. 225):
Covenants to insure have been given a specific interpretation in the case law. They not only obligate one party to obtain insurance (the meaning apparent from the wording of the covenant) but also relieve the other party of liability for losses, subject to the covenant, even if such losses are caused by its own negligence. This is a meaning which does not flow directly from the words of a covenant to insure, but it is a meaning which inexorably flows from the context of such a covenant. As such, it is a good example of contextual contractual interpretation, in which meaning is derived not only from the text but also from all relevant circumstances, which are drawn upon to give a provision a meaning that makes good commercial sense. [my emphasis]
[41] In Madison Developments Ltd. v. Plan Electric Co. 1997 CanLII 1277 (ON CA), [1997] O.J. No. 4249; 36 O.R. (3d) 80; 152 D.L.R. (4th) 653; 104 O.A.C. 194; 35 C.L.R. (2d) 147; [1998] I.L.R. I-3493; 74 A.C.W.S. (3d) 860; 1997 CarswellOnt 3797, a general contractor was contractually required to pay for insurance to cover a construction project. There a subcontractor was negligent in performing its subcontract and caused a fire that resulted in significant damage to the project. The general contractor's insurer paid to repair the damage and then sued the subcontractor. The subcontractor successfully defended the action on the basis that the general contractor had assumed the risk of the damage by agreeing in its contract to take out insurance to cover damage to the project.
[42] Writing for a Court made up of Justices Brooke, Carthy and Laskin, Justice Carthy examined the nature and purpose of the insurance on construction projects and made reference to Chief Justice Laskin’s reasons T. Eaton Co. Ltd. v. Smith et al. (1977), 1977 CanLII 39 (SCC), 92 D.L.R. (3d) 425: (S.C.C.):
- In the T. Eaton case, Laskin C.J.C. put it this way at p. 430:
I do not think, strictly speaking, that it is correct to assess the question at hand by reference to the so-called "exculpatory clause" cases, such as Canada Steamship Lines Ltd. v. The King, 1952 CanLII 260 (UK JCPC), [1952] 2 D.L.R. 786, [1952] A.C. 192, 5 W.W.R. (N.S.) 609. This is not a case where one has to consider whether there is some provision exonerating one contracting party from liability to the other for the former's negligence. Rather is it a case where a supervening covenant has been given and taken to cover by an insurance policy the risk of loss from a fire caused by negligence. An insurer could not refuse to pay a claim for loss by fire merely because the fire arose from the insured's negligence. I can see no reason why its position can be any better against a tenant, whose negligence caused loss by fire, if the lease with the landlord makes it clear that a policy was to be taken out by the landlord to cover such fires, and a policy is written which does so. In short, the insurer can claim only by subrogation under the lease.
- In my view, this interpretive reasoning as to the terms of a lease applies equally to this contract between contractor and subcontractor.… The anticipation was that a group of subcontractors would contribute their efforts to the overall project and it was undoubtedly expected that if a fire occurred it would most likely be caused by the negligence of one of those subcontractors. Given the contractor's obligation in favour of the owner to obtain comprehensive fire insurance it makes no business sense for each subcontractor to pay premiums to duplicate that coverage…
12 The separate obligation of the subcontractor in Article V to obtain liability insurance is, in a way, akin to the separate obligation of the tenant to repair. The subcontractor's obligation to obtain liability insurance, which would cover many risks beyond that of fire, can be written with an eye to the respective obligations of the subcontractor and the contractor. In other words, the liability insurer should know in setting the premium that the subcontractor is protected against fire-related losses to the owner or general contractor caused by its negligence.
[43] In Active Fire Protection 2000 Ltd. v. B.W.K. Construction Co., [2004] O.J. No. 5087 [2004] O.T.C. 1101; 41 C.L.R. (3d) 150; a general contractor was contractually required to obtain insurance to cover subcontractors and the owner on a project in Durham. The subcontractor responsible for the installation of a sprinkler was admittedly negligent and caused a flood which damaged the project. The general contractor, perhaps in the same manner is alleged with respect to Mr. Lista, had failed to obtain the insurance required and was forced to pay for the repairs itself. The general contractor then sued the negligent subcontractor for indemnity for the repair costs.
[44] The subcontractor admitted it was negligent and caused the damage, but successfully moved for summary judgment dismissing the action. Justice Logan in his reasons, which were upheld on appeal, observed:
13 If B.W.K. had fulfilled its obligation to obtain "all-risk" property insurance the damages caused by the negligence of Active would have been paid by the insurer. In this case however, B.W.K. neglected to obtain the "all-risks" property insurance. This gives rise to the second issue. Does the neglect allow B.W.K. to recover damages from Active for its admitted negligence? I find it does not. The authorities do not appear to provide exceptions to the general intention of the rule …
14 An agreement made by a contractor with the owner to obtain "all-risks" property insurance protects the sub-contractor or the owner from claims for its own negligence. This rule follows from the principle of law that a party cannot benefit from its own wrong. If the sub-contractor was held liable, it would be deprived of the insurance that was supposed to have been taken out in its favour. It would make no business sense for each sub-contractor to have to obtain its own insurance.
(c) When can refusal of amendment be justified?
[45] Here, relying upon Iroquois Power Corp. v. Jacobs Canada Inc. [2009] ONCA 517, the Plaintiffs argue that for a pleading amendment to be refused, the potential prejudice complained of must arise directly from the amendment. In particular they submit that:
“Prejudice of the sort contemplated by Rule 26.01 of the Rules includes the compromised ability to take steps against a third party:
(a) either because of the expiry of a relevant limitation period between the date of the original pleading and the date of the proposed amendments; or
(b) some other intervening event which limits the Plaintiffs' ability to meet the fundamentally different case that results from the proposed amendments.
[see Churly v. Budnick 1997 CanLII 12260 (ON SC), [1997] O.J. 2909 and Tender Choice Foods Inc. v. Aviva Insurance Co. of Canada [2011] O.J No. 392]”
[46] In the circumstances, I am satisfied that the the defences which SCE intends to raise are substantive defences that will potentially answer a significant portion of the claims made in the action against that company. If a motion for summary judgment is granted, the trial is likely to be significantly shortened. Nevertheless, based on the factors listed above, an examination is still required of the various items of alleged sufficient prejudice put forward by the plaintiffs
VII. Asserted Prejudice
[47] The plaintiffs allege a number of specific areas of potential prejudice which they assert justify refusing to permit the amendments sought.
[48] In the instant case the prejudice that will be experienced by the Plaintiffs as a direct result of the proposed amendments to the SCE defence include:
a. delay that will enlarge the damage the Plaintiffs will experience before trial and increase the remedial costs to repair that damage;
b. the inability to sue SCE' s principal Ross Gilmore because that opportunity was forfeited at a time when the case the Plaintiff was meeting did not raise the prospect of a litigation bar against SCE;
c. the compromised ability to sue the lawyer who drafted the SCE contract on behalf of the Plaintiffs because of the expiry of a limitation period before SCE raised the contract terms as a bar to the claim;
d. the compromised ability to sue the lawyer who drafted the SCE contract for the Plaintiffs because of the prospect of disclosing privileged information imparted during the current litigation prior to the proposed amendments.
(a) Increased Remedial Costs
[49] One cited example of prejudice linked to future delay of the action is the actual cost of the Parklex replacement. Between 2008 and 2013 the cost of replacement increased from $244,820.00 to about $294,000.00 before HST. It is submitted that that cost will likely increase by the time of trial and further still during any period of delay attributable to the SCE amendments to their defence and the related subsequent proceedings.
[50] It seems to me that the additional cost of replacement could be mitigated by proceeding with the repair now. In any event, the damages claimed in the consolidated statement of claim total $4 million, which should more than cover any excess damages incurred.This in my view this is not the type of prohibitive prejudice contemplated by the caselaw.
(b). Delay In The Scheduled Trial Date
- The plaintiffs further claim that they will be prejudiced by a possible delay in the scheduled trial date. However, it is clear that the general prejudice caused to a party when pleadings are amended on the eve of trial and a delay is necessitated is insufficient to displace the mandatory wording of r.26.01 in allowing the amendment. Rule 26.01 states that on a"motion at any stage of an action the court shall grant leave to amend a pleading ... " This Rule clearly contemplates an adjournment in the event of a justified amendment, such that a delay is not prejudice.
[51] In Kings Gate Developments v. Colangelo, 1994 CanLII 416 (ON CA), [1994] O.J.. No. 633, the Ontario Court of Appeal held that
"rule 26.01 requires that amendments be permitted unless the prejudice cannot be compensated for in costs."
[52] Thus, the Court of Appeal has determined that delay, alone, which can be compensated in costs is not sufficient to prevent an amendment to a pleading being granted.
[53] In cases such as Yuen v. Woodward, 1990 CanLII 1862 (BC SC), defendants have been granted leave to amend their statement of defence to plead a defence fatal to a plaintiff's claim only three weeks prior to trial, with the acknowledgement that while it would result in a prejudice to the plaintiff, such prejudice could be compensated for by an award of costs at a specified level12•.
[54] Examples of non-compensable prejudice include the death of a material witness or destruction of essential files':'. Non-compensable prejudice sufficient to deny amendments has not been demonstrated by the plaintiffs.
[55] The case law is clear that amendments can be granted weeks or even days before a trial is scheduled to start and still not cause non-compensable prejudice. The scheduled trial in this action is many months away; as such, the proposed amendments by the defendant would notcause any non-compensable prejudice to the plaintiffs.
(c) Gilmore Settlement
[56] Initially named as a Defendant along with SCE was its principal, Ross Gilmore, In July 2009 a motion was brought by Mr. Gilmore (and Stephen Teeple) for summary judgment to dismiss the claims against thenm in their personal capacities. That motion was dismissed by Mr. Justice Perkins on July 15, 2009 and costs were awarded to the Plaintiffs.,
[57] Mr. Teeple and Mr. Gilmore brought a motion for leave to appeal. Leave was granted by Madam Justice Wilson on or about October 2, 2009 who awarded costs to each of the moving parties.
[58] Following the order granting leave, the issue of these Defendants' liability was resolved by an agreement that the action would be dismissed against Messrs. Teeple and Gilmore and releases would be granted in their favour. The costs awards by Justice Perkins and Justice Wilson were both forgiven. As part of those settlements Mr. Gilmore and Mr. Teeple agreed to make themselves available for discovery in this action.
[59] Because of the now proposed additional defences the Plaintiffs factum points out :
“16. At the time of the dismissal of the action against Gilmore, there was no mention of the issues presently proposed to be introduced by SCE. In other words, there was no mention of a litigation bar against that Defendant….
In accordance with the Minutes of Settlement, each of Mr. Teeple and Mr. Gilmore were released by the Plaintiffs on the terms of the Releases appended in draft form to the Minutes.
The Plaintiffs' decision to release Mr. Gilmour was influenced, in part, by the fact that SCE would remain as a defendant.
If the SCE Defense had, at the time of the negotiated release of Mr. Gilmore, included the proposed amendments to the Defence, the Plaintiffs may not have agreed to the dismissal of the action against Mr. Gilmore.” [my emphasis]
[60] I therefore have undertaken a closer examination of three heads of claims of alleged prejudice relating to the Gilmore settlement:
the plaintiffs claim they have lost an opportunity to consider their options against Gilmore;
whether the Minutes of Settlement with Gilmore show that the plaintiffs contemplated that SCE might withdraw its defence: and
whether the plaintiffs would be unable to sue Gihnore regardless, as the proposed amendments would cover actions against him as well. The first two issues are discussed below. The third point was addressed in SCE's prior supplementary factum
• Loss of Opportunity to Consider Options
[61] The defendants do not deny that a loss of opportunity can, in certain instances, amount to prejudice; rather, its argument is that a lost opportunity does not necessarily result in prejudice and, further, that the alleged lost opportunity in the case at bar does not result in prejudice to the plaintiffs.
[62] The plaintiffs' claim for loss of opportunity is that they are no longer able to bring a claim against a former defendant. However, in Yuen, supra,the inability to pursue a claim against a defendant against whom the claim had previously been discontinued has been held to not be prejudice to a plaintiff in a motion by a defendant to amend its statement of defence to plead a potentially fatal defence.
[63] The cases cited by the plaintiffs in support of their claim to prejudice can all be distinguished from the facts in this case.
[64] For example in Peel Law Assn. v. Royal & Sun Alliance Insurance Co. of Canada: 2013 ONSC 2312 the case involved a claim for costs incurred by the plaintiff in defending an action that had been completed through to the Court of Appeal. Mediation, judgment and filing for judicial review were all completed before notice was given to the insurer, and the court held that this late notice prejudiced the insurer bydepriving it of making a proper assessment of liability and in setting reserves, in losing the early opportunity to investigate the incident, to settle the matter without the involvement of lawyers, and to retain their own counsel. These lost opportunities particularly prejudiced the insurer given the high cost of the litigation and the modest Tribunal orders granted.
[65] I agree with the moving party’s assertion that the fact pattern in Peel is very different from this proceeding in three ways. First, the defendant in Peel was denied numerous opportunities aside from the opportunity to negotiate, which is not the case here. It is the culmination of these five distinct lost opportunities in Peel, in addition to the disparity of the legal fees to the Tribunal orders, which resulted in prejudice. Second, as it relates to the lost opportunity to negotiate, the defendant in Peel had no opportunity at all to negotiate, contrasted with the plaintiffs in this action who had a full opportunity to negotiate before deciding to release Gilmore from the action. Third, the prejudice suffered was in the context of a claim for coverage on an insurance policy, not a motion to amend a pleading. As a result I conclude that his case is of no assistance to the plaintiffs.
[66] In another case, Leclair v. Ontario (Attorney General) [2008] O.J. No. 2428 (ONSC) then Master Beaudoin held, in an action that involved a motion to add a defendant after 26 days of discovery had already been conducted and after the proposed defendant had been examined as a non-party, without independent legal counsel, and without any indication that he may later be added as a party. This case is clearly distinguishable, as the prejudice in Leclair arose because the proposed defendant was misled as to his involvement as a witness and because he was excluded from partaking in the extensive discoveries as a party. This is far more serious than, as here, failing to have one further piece of information which could potentially be used in negotiations. In addition, the court in Leclair held that there was a presumption of prejudice if a person takes part in litigation on the understanding that they are simply a witness and then steps are subsequently taken to add them as a party to the litigation.
[67] The Statement of Claim contains these paragraphs which relate to Mr Gilmore’s involvement (with my emphasis:
“SCE Construction Management Inc.
The Defendant SCE Construction Management Inc. entered into an agreement with 1642279 Ontario Inc. on or about October 24, 2005, by which point 1642279 Ontario Inc. was the registered owner of the property known municipally as 1421 Hurontario Street, Mississauga, Ontario.
The responsibilities of SCE Construction Management Inc. and Ross Gilmore included, inter alia:
a) preparing a project budget;
b) review the drawings and specifications for the project, and make recommendations to 1642279 Ontario Inc., regarding the division of the work in the drawings and specifications in respect of the construction of The Plastic Surgery Clinic aforedescribed,
c) assist 1642279 Ontario Inc. to facilitate the bidding and awarding of trade contracts;
d) plan and arrange for the supply of temporary services and site facilities;
e) monitor and co-ordinate the work of the trade contractors;
f) monitor invoices from contractors to ensure the accuracy and reasonableness of amounts billed;
g) advise 1642279 Ontario Inc. which work should best be done by SCE Construction Management Inc.;
h) inspect the work of trade contractors working on the construction of the aforesaid plastic surgery clinic to ensure construction in accordance with the drawings, plans and specifications, and identify and correct defects and deficiencies in the work;
i) develop and implement and maintain an effective system of project control for the aforesaid construction project;
all of which they failed to do or did improperly.
- Ross Gilmore was the principal of SCE Construction Management Inc. and knew or should have known at all material times, along with the other Defendants, that the project was intended to provide a medical clinic from which the Plaintiff Frank Lista would run his plastic and aesthetic surgery practice, and knew or should have known at all material times that all of the Plaintiffs, would receive revenue from the said practice, and as such he owed a duty of care to all of them.
Construction Negligence of the Defendants SCE Construction Management Inc., Teeple Architects Ine., Stephen Teeple, Ross Gilmore, Bernard Jin
The Plaintiffs say, and the fact is, that the Defendants performed their obligations in a manner which was negligent and a major departure from construction industry best practices resulting in widespread deficiencies and failure to construct in accordance with the construction documents, including the drawings and specifications) and the as-built condition of The Plastic Surgery Clinic.
These departures from the construction industry best practices, and failure to construct in accordance with the construction documents, resulted in moisture accumulating on both the exterior and interior surfaces of The Plastic Surgery Clinic, with widespread breaches in the air barrier/vapour retarder assembly, all of which caused damage to the building and compromised the safe and efficient operation of The Plastic Surgery Clinic.
Throughout the project the composite panel cladding was installed in a manner that was both inconsistent and contrary to the drawings and specifications or, in the alternative, the drawings and specifications as prepared by the Defendants Teeple Architects, Stephen Teeple and Bernard Jin, or SCE Construction Management Inc. and Ross Gilmore, were wrong.
[68] It appears that no contractual obligation is asserted against Mr. Gilmore. He was an agent of the contracting party SCE and in my view would be entitled to the same protection as his company under the expected insurance referred to in Article 17.1:
The Owner undertakes and agrees at his cost to maintain insurance insuring the interest of and indemnifying the Construction Manager against any liability which he might incur as a result of damage to or injury sustained by any portion of the Project.
[69] As a consequence I see no probable prejudice flowing from the settlement that was entered with Mr Gilmore.
• Minutes of Settlement
[70] The Minutes of Settlement with Gilmore show that it was within the plaintiffs' contemplation that SCE's position regarding this action might change at any point in the future.(e.g. withdrawing their defence) In my view the plaintiffs' failure to turn their mind to SCE amending its defence to rely on a contractual provision does not amount to prejudice.
(d) Compromised Ability to Sue Third Party
[71] The Plaintiffs’ factum notes that the same lawyer advised the Plaintiffs throughout the engagement of the Defendants and the construction of the clinic, including the preparation and finalizing of the SCE agreement. That individual “had a direct hand in the negotiation, drafting and finalisation of the contract between SCE and the numbered company.”
[72] Moreover, he has also been actively and regularly assisting the Plaintiffs and their counsel in the conduct of this litigation from the beginning to date.
[73] The resisting parties assert that if SCE is successful in their proposed defence, the Plaintiffs' recovery would be restricted to the remaining defendants or be reduced by whatever amount SCE had contributed to the damages. One way to recover such a loss would be by an action against their original counsel for his responsibility in the drafting of the SCE agreement, particularly as it relates to the language in the contract dealing with insurance. The plaintiffs observe that such an action action would, in turn, probably be joined to the current litigation. If such an action were commenced by the Plaintiffs, it “would likely be met with the defence from their counsel that the alleged negligence occurred in or about 2005 and that the relevant limitation period has expired”.
[74] It is further posited that any potential action against the previous counsel would have to take into account the delay of the trial and that would factor in the decision as to whether he would be sued.
[75] In his affidavit filed in opposition to this motion Mr. Lista deposes that by his involvement the litigation his lawyer has had access to confidential information by the Plaintiffs about the action. He is familiar with possible settlement instructions and the strategy to be pursued at trial. The plaintiffs’ factum further speculates that by proceeding against him “in an action that would likely be joined to the trial herein the Plaintiffs' position against the other Defendants would be compromised by the possibility of such information being disclosed in the conduct of the action” against the original counsel.
[76] In particular Mr Lista deposes:
“38, Had the Defendants raised this new defence earlier in this action and in a timely way, I and the other the Plaintiffs could have reconsidered … [my lawyer's] involvement in this action. That opportunity is now gone.”
[77] The defendant maintains its position taken in its supplementary factum that the prejudice claimed by this allegation is prejudice resulting from the success of SCE's plea on its merits and that such a claim to prejudice is not the type which would permit a court to refuse a proposed amendment under rule 26.01.
[78] As noted earlier the 2010 discovery provided notice of this potential development. The plaintiffs continued to work with their lawyer after that event. In my view the plaintiffs had was the fact that they were alerted to the issue of the covenant to insure. The plaintiffs then had the opportunity to investigate further and to turn their minds to the issues that covenant might present for them.
[79] Further, I accept the defendants argument that while the plaintiffs claimed that Lista and the other plaintiffs were not sufficiently sophisticated to be able to glean the subtleties of the issue from the examination questioning. The sophistication of the plaintiffs themselves, or lack thereof, is of no importance, as Lista was represented by legal counsel at his examination and throughout the duration of this action. No evidence has been adduced by the plaintiffs on this issue of sophistication. Additionally, it is Mr. Schneiderman, Lista's counsel, who states in the transcript extract reproduced earlier in these reasons that he will review the insurance policy and see if it is related to the project. It is therefore clear that the plaintiffs and their counsel were in a proper position to investigate the issue further as early as May of 2010.
[80] In the result I conclude that the plaintiffs cannot show prejudice that arises out of the proposed amendments that is of a nature that would prohibit my allowing the amendments to be made.
VIII. Limitation Concerns: Set-off
[81] The Plaintiffs also raise concerns with respect to proposed in paragraph 8 which ,with my emphasis added, reads:
“SCE further states that 1642279 Ontario Inc. failed to purchase the required insurance and, as a result, SCE is entitled to indemnity for its defence costs and any damages which may be apportioned against it in this action.”
[82] This claim for indemnity of SCE's defence costs and damages that may be apportioned against it in the action (presumably in the event of success by the cross-claim from Teeple Architects). Counsel for the plaintiffs submits, relying upon Comtract Air Compressors Inc. v. A. W. Service Industries Inc., 2000 CanLII 22763 (ON SC), [2000] OJ. No. 1867, that the only claim that may be advanced in a Statement of Defence (as distinct from a Cross-Claim or Counterclaim) is one made by way of set-off.
[83] Set-off must be either legal or equitable and legal set-off requires mutuality of liquidated claims.[see CIBC World .Market Inc. v. Burgess [2009] OJ. No. 1724]
[84] Their factum continues:
An indemnity claim cannot be a legal set-off because there is no liquidated sum claimed one from the other in that circumstance.
A claim for contribution and indemnity cannot be made more than two years after service of the Statement of Claim, nor can it be made by way of set-off as distinct from CrossClaim or Counterclaim. To advance such a claim in a defence is not a legally tenable pleading.
Goma v. Raghunandan [2011] O.J. No. 4916
Equitable Set-off
[85] Relying upon the Supreme Court’s decision in Holt v. Telford 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, it
is submitted that for an equitable set-off to occur, the following requirements must be met:
a. there must be some equitable ground for protecting the Defendant against the Plaintiffs' claims;
b. the equitable ground must go to the root of the Plaintiffs' claim;
c. the set-off claim must be so clearly connected with the Plaintiffs' demand that it would be manifestly unjust to allow the Plaintiff to enforce payment without taking it into consideration;
d. the Plaintiffs' claim and the crossclaim need not arise under the same contract;
e. unliquidated claims are on the same footing as liquidated claims.
[86] The plaintiffs’ factum continues:
- Equitable set-off acts as an estoppel because there must be cross obligations before set-off can arise.
Oakley v. Canada Trust Realty Inc. [2000] O.J. No. 1317
- Section 111 of the Courts of Justice Act contemplates a legal set-off and only in that circumstance is the Defendant permitted to recover the excess of its debt over the Plaintiff’s debt.
Canada Trust Mortgage Co. v. Pierce [2005] 0.J. No. 1886
50.The relationship between the Plaintiffs' claim and the Defendant's set-off in order to qualify as an equitable set-off, must be a claim that has either been brought about by,
contributed to by, or is otherwise is so bound up with IJe rights of the Plaintiffs that it would be unconscionable to allow the Plaintiffs' claim to proceed without permitting the set-off.
Mayfair Tennis Courts Ltd. v. Nautilus Fitness & Racquet Centre Inc. [1996] OJ. No. 158
[87] They conclude that the claim for set-off in paragraph 8 of the proposed amendment by SCE is a not legally tenable pleading as it is not a legal set-off and cannot be a proper equitable set-off claim for the following reasons:
a. if the allegations are correct in paragraph 6 and 7 of the proposed amendments, that the failure to acquire insurance is a complete bar to the Plaintiffs' claim, there can be no obligation from the Plaintiff against which the SCE indemnity claim can be set-off or act as an estoppel;
b. the liability for indemnity by the Plaintiff for the indemnity sought by SCE for its damage apportionment (presumably against Teeple Architects) can only arise if the litigation bar is successful and there is no claim for which the Plaintiffs can be compensated by SCE. If the Defendant's set-off claim were to prevail in that circumstance it would exceed the Plaintiff s claim, which is not permissible;
c. further, there is nothing in the Plaintiffs' claim which contributed to or brought about or is otherwise bound up with the claim of the Defendant;
d. nor is there any evidence of an equitable ground for protecting the Defendant against the Plaintiff s clam.
[88] Their argument concludes that hence, the duty to make good is an independent obligation which SCE is proposing to insert improperly into its defence.
[89] A final determination of whether such a claim can be made in my view is premature at this time. I am not satisfied that the Limitations Act would prevent the claim that is alleged to be incorporated in this paragraph of the proposed amendments.
[90] As a consequence I am allowing paragraph 8 to be added to the defence, but on the condition that such addition is totally without prejudice to any limitation arguments available to the plaintiffs.
IX. Conclusion
[91] In the result I am not convinced that plaintiffs have demonstrated they will suffer any prejudice which cannot be compensated by an adjournment of the trial or costs.
[92] Having granted leave to the moving party to bring this motion I am now granting SCE Construction Management Inc. leave to amend its defence in this action to add these paragraphs:
Most significantly, Contract required the Owner to purchase insurance for SCE which indemnified it against any liability which it might incur as a result of damage to or injury sustained to any portion of the Project. The Project is the construction of the plastic surgery clinic building in issue.
SCE states that the plaintiff, 1642279 Ontario Inc. assumed the risk of damage to the Project by agreeing to purchase SCE's insurance and therefore its claim against SCE is barred by the insurance provisions of the Contract.
SCE further states that 1642279 Ontario Inc. failed to purchase the required insurance and, as a result, SCE is entitled to indemnity for its defence costs and any damages which may be apportioned against it in this action.”
[93] I wish to acknowledge the skilled advocacy before me, and helpful submissions provided by the advocates appearing for both parties.
[94] In the circumstances I am concerned that the moving party has allowed this action to proceed for a lengthy period without identifying this seminal issue. However the plaintiffs opposed the amendment vigorously. I am therefore awarding SCE only 50% of their partial indemnity costs claim on this motion. If the parties cannot agree on an appropriate amount within 30 days I may be contacted to convene a case conference to resolve that remaining issue.
Released: February 6, 2015
Master D. E. Short
DS/ R. 84