COURT FILE NO.: CV-15-0694-00 DATE: 2016 06 08

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

TSI International Inc.

Plaintiff

Robert Taylor for the Plaintiff

- and -

John Formosa, Steffen Nielsen, iFarmLocal Inc., Richard Taylor, Great Life Group Inc. and John Masih, carrying on business as MSM Group

Defendants

Tim Duncan for the Defendants

HEARD: December 21, 2015 and March 21, 2016.

REASONS FOR DECISION ON MOTION

LeMay J.

[1] This is a motion by the Plaintiff, TSI International, to strike out significant portions of the pleadings of the Defendants on the basis that they violate Rules 25.11 and on the basis that they disclose no reasonable defence under Rule 21.

[2] For the reasons that follow, certain paragraphs of the Defendants’ pleadings are struck, some without leave to amend and some with leave to amend to address particular issues.

[3] Both the Statement of Claim and the Statement of Defence are more than 100 paragraphs long. Both of them contain significant allegations expressed in what I would describe as firm and assertive language. They are also both far more detailed than is necessary or usual in pleadings. The Plaintiffs have challenged some or all of more than thirty of the paragraphs in the Statement of Defence on a number of different grounds.

[4] As a result, I am going to set out the background to this case, and then analyze each of the main issues that present themselves.

The Main Issues

[5] The Plaintiff’s argument on this motion raises a number of larger issues. Analyzing the larger issues first will permit a more efficient disposition of the specific concerns that the Plaintiff has raised with specific paragraphs of the Statement of Defence.

[6] The larger issues that present themselves in this motion are:

a) The significance of Ricchetti J.’s decision on the injunction application for this motion. b) Whether the Plaintiff’s motion to strike portions of the pleading should be granted under Rule 25.11? c) Whether the Defendants’ claim for abuse of process can succeed or whether it should be struck under Rule 21? d) Whether the Defendants’ claim that the doctrine of “clean hands” prevents the Plaintiff from making claims in equity can succeed or should be struck under Rule 21? e) Whether the manner in which the Plaintiff’s allegations are pled permit the Defendants to respond to those allegations in a broader manner?

[7] Once these issues are resolved, then the individual pleadings will be considered.

Background Facts

a) The Parties

[8] The Plaintiff, TSI International Inc. (“TSI”) is a company that is engaged in land syndication, or “land banking”. The sole shareholder was Stephen Huggins, who passed away in February of 2014. At that point, control of the company passed to his widow Ms. Meagan Maguire, who sold it to Mr. Dennis Lane. There are issues relating to whether the transaction has actually been completed but, for the purposes of this motion, I accept that Mr. Lane has control of TSI.

[9] Mr. Lane is not a party to this action. He is not a Plaintiff, and he has not been the subject of a third party claim by any of the Defendants. He is, however, the company’s directing mind, and has been since the summer of 2014.

[10] The personal Defendants were all either employed by TSI or performed consulting work for TSI. The corporate Defendants are all controlled by personal Defendants.

[11] Steffen Neilsen had worked as a consultant for TSI starting in 2004. He was appointed Chief Financial Officer in 2008, and held this position until his employment was terminated in January of 2015.

[12] John Formosa began consulting for TSI in 2005. He was appointed Chief Development Officer in 2010, and resigned his employment, claiming constructive dismissal, in January of 2015.

[13] John Masih carries on business as the MSM Group and was an independent contractor in the information technology area for TSI starting in 2011. He had a confidentiality agreement with TSI.

[14] Richard Taylor is an individual who works in the area of commercial real estate, and has been a long term acquaintance of Mr. Formosa’s.

[15] The Defendant iFarm Local Inc. was a company incorporated by Mr. Formosa and Mr. Neilsen in the summer of 2014.

[16] The Defendant Great Life Group Inc. is a company that was incorporated by the Defendant, Mr. Taylor, in the summer of 2014.

b) The Events Leading to the Lawsuit

[17] As noted above, Mr. Stephen Huggins, the former principal shareholder of TSI, passed away in February of 2014. Mr. Formosa and Mr. Nielsen entered into negotiations with Ms. Maguire to attempt to purchase TSI. Those negotiations were unsuccessful.

[18] Instead of selling the company to Mr. Formosa and Mr. Nielsen, Ms. Maguire sold TSI to a group headed by Mr. Lane. This sale was completed in August of 2014.

[19] It is clear that, between August of 2014 and January of 2015, the relationship between TSI on the one hand and Mr. Formosa and Mr. Neilsen on the other hand deteriorated. It is also clear that TSI had concerns about the information technology services that Mr. Masih was providing in this time period.

[20] I do not intend to resolve the factual disputes between the parties regarding the events from August of 2014 to January 2015. To the extent that those events are relevant to the damages in either the Statement of Claim, or the Defence and Counterclaim, they will be resolved either on a motion for summary judgment or a trial.

[21] In any event, things came to a head in January of 2015 when Neilsen’s employment was terminated, and Formosa resigned claiming constructive dismissal.

c) The Procedural History of this Matter

[22] TSI commenced this action by way of a Notice of Application dated February 11th, 2015. They also brought a motion seeking an injunction and an Anton Piller Order on an urgent basis.

[23] On February 18th, 2015, Ricchetti J. granted the Plaintiff an injunction and an Anton Piller Order. He released his reasons for decision on February 20th, 2015. In his reasons, he stated (at paragraph 91):

At this point, based on the evidence before me, it is difficult to ascertain what, if any, defence could possibly succeed.

[24] Although Ricchetti J. believed that the injunction might end this action, it did not. The Plaintiffs filed their Statement of Claim on March 13th, 2015, and the Defendants then served their draft Statement of Defence on Plaintiff’s counsel on May 1st, 2015. This document was then filed with the Court sometime in May of 2015, after an exchange of e-mails between counsel.

[25] Sometime in June of 2015, the Plaintiff’s counsel booked a long motion date in Brampton to bring a motion to strike out portions of the Defence and Counterclaim.

[26] This motion was heard before me on December 21st, 2015. At that time, I expressed to the parties my view that much of the relief that was being sought by the Plaintiff under Rule 25 really related to arguments under Rule 21. I dismissed the Plaintiff’s arguments under Rule 25 for reasons to follow. Those reasons are set out below.

[27] However, I also noted that it was likely that the Plaintiff would want to seek similar relief under Rule 21. In the circumstances, I advised the parties that this relief should be sought before me, and a further date was booked for March 21st, 2016 to argue the issues relating to Rule 21. I heard arguments from both sides on March 21st, 2016 for an entire day.

[28] As a result of time constraints, the Defendant’s argument on the specific paragraphs that the Plaintiff was seeking to have struck was not completed at the end of March 21st, 2016. I permitted the filing of written arguments to conclude the arguments, and this process was completed on April 11th, 2016.

[29] In the meantime, I was appointed as the case management judge in this matter. I have provided a series of further directions to the parties relating to other interlocutory proceedings, as well as the overall management of this case. The pleadings in this action have not yet closed.

[30] I now turn to deal with the legal questions that present themselves in this case.

Issue #1 - The Effect of Ricchetti J.’s Ruling

[31] Counsel for the Plaintiff argues that the decision of Ricchetti J. in this matter (2015 ONSC 1138) is not a “fact” or “evidence” but a judicial finding, and that I should take the whole decision into consideration in addressing the issues on this motion.

[32] In support of this argument, the Plaintiff points to the Supreme Court of Canada’s decision in British Columbia (Attorney General) v. Malik (2011 SCC 18) at paragraph 7. In that decision, the Supreme Court stated that a judgment in a prior case is admissible as proof of its findings and conclusions, provided the parties participated in the prior proceedings.

[33] The Plaintiff argues that I should adopt this principle and take judicial notice of a number of “admissions” that the Defendants have made. Those admissions are catalogued in the reasons of Ricchetti J. Indeed, as noted above, Ricchetti J. was of the view that, based on the evidence before him, it was difficult to see any defence succeeding. The Plaintiff seeks to rely on these findings in support of its position on this motion.

[34] The problem with the Plaintiff’s argument is that it is putting the cart before the horse. Ricchetti J. did not determine any of the facts in this case. Those facts will be determined by either a judge hearing a summary judgment motion or the trial judge. As a result, there is no final judicial determination in this case. If I were to accept the Plaintiff’s argument, I would be foreclosing the Defendant’s right to litigate this case.

[35] The findings of Ricchetti J. are not conclusions, and do not represent a final adjudication of this case. Indeed, at paragraph 6 of his reasons he states:

My role as a motions judge is not to make findings of fact but to consider the credible evidence on the record before me to ascertain the strength of the plaintiff’s case and the other factors to make a determination whether it is just and convenient that the relief sought should be issued.

[36] As a result, Ricchetti J.’s comments about the strength of the Plaintiff’s case, the conduct of the Defendants and the likely outcomes of the case are not judicial conclusions. In my view, the principle in Malik, supra, does not apply in this case.

[37] However, there is one exception to my conclusion on this issue. Ricchetti J. would not have issued the injunction and the Anton Piller orders unless he found that there was a “strong prima facie case”. Indeed, he made that precise conclusion at paragraph 92 of his reasons. I will rely on this finding, and will return to it in my discussion of abuse of process below.

Issue #2 - Does Rule 25.11 Apply in this Case?

[38] Rule 25.11 states that a pleading may be struck out on the basis that it:

a) May prejudice or delay the fair trial of the action; b) Is scandalous, frivolous or vexatious; or c) Is an abuse of process of the Court.

[39] The test for striking a pleading under Rule 25.11 has been considered in numerous cases. The decision of Strathy J. (as he then was) in Carney Timber Co. v. Pabedinskas (2008 ONSC 63163), [2008] O.J. No. 4818 (S.C.J.) summarizes a series of different factors that have been considered in other leading cases (at paragraph 16). Strathy J. goes on to say (at paragraph 17):

The common thread of the criteria of Rule 25.11 is the facts pleaded are irrelevant to the issues before the court, or are so prejudicial that the pleading or portion of thereof should be struck in spite of their relevance.

[40] The test for striking a pleading is very high. It requires that the pleading be prejudicial or completely irrelevant. In this case, the Defendants have advanced arguments relating to abuse of process and the clean hands doctrine. Virtually all of their pleadings are arguably relevant to those defences.

[41] Further, the claims of abuse of process and the clean hands doctrine are not scandalous, frivolous or vexatious, and do not amount to an abuse of process. The fact that a claim is of dubious merit does not make it scandalous, frivolous or vexatious. It is my view that neither of these claims can be dismissed under Rule 25.11.

[42] Given that conclusion, Rule 25.11 cannot be relied upon by the Plaintiffs to strike the pleadings in this case. Instead, the appropriate way to view this case is to consider whether the defences advanced by the Defendants of abuse of process and violation of the “clean hands doctrine” can survive under Rule 21. Once that decision is made, the appropriateness of the pleadings can be revisited.

[43] In support of his argument, Plaintiff’s counsel points to the decision in Parker v. Pfizer Canada Inc. (2011 ONSC 5169), in which Perell J. provides a very helpful discussion of material facts. Plaintiff’s counsel argues that none of the impugned pleadings disclose material facts and are, therefore, “embarrassing” within the meaning of this decision. I disagree. The Defendants’ counsel quite rightly points out that these pleadings may very well be relevant to the defences that the Defendants are relying on. I cannot determine whether these pleadings are “embarrassing” “scandalous” or otherwise caught by the provisions of Rule 25.11 until I consider the question of whether these defences can survive under Rule 21.

[44] If these defences cannot survive, then significant portions of the Defendants’ pleadings would be struck as a result of my findings under Rule 21. On the other hand, if the defences can survive an analysis under Rule 21, then the pleadings that support them could not be struck under Rule 25 as they might very well disclose material facts. I now turn to the Rule 21 issues.

Issue #3 - Should the Defendants’ Claim of Abuse of Process be Struck Under Rule 21?

[45] Yes. Even if I accept every fact in the Defendant’s claim as true, they have no chance of advancing a successful claim that there has been an abuse of process in this case.

[46] The test for determining whether a pleading can be struck under Rule 21.01(b) is to determine whether, assuming the facts as set forth in the Statement of Claim can be proven, it is plain and obvious that no reasonable cause of action is disclosed. (see, for example, Hunt v. Carey Canada Inc. (, [1990] 2 S.C.R. 959) at 980 and Vaseloff v. Leo (2014 ONSC 5227) at paragraph 10)

[47] The Defendants are claiming that this action was brought “for a collateral or illicit purpose other than the resolution of the claims made in the main action.” In support of this position, the Defendants also argue that they have “cogently articulated their theory of the case and identified the Plaintiff’s improper objective in bringing its action against them.”

[48] I understand the Defendants’ theory of the case to be, in essence, that Mr. Lane engaged in breaches of his fiduciary duty to TSI that might include misconduct from a tax perspective, and also included misleading investors and misappropriating TSI assets for his own use. The Defendants claim that Lane has directed TSI to start this action to get out in front of these allegations and to try and blame the Defendants for them.

[49] The problem that I have is that I do not see how the Defendants’ claims relate to either TSI’s claims that the Defendants’ breached various duties to them or to the Defendants’ counterclaims against TSI for damages for wrongful and constructive dismissal.

[50] My analysis starts with the test for finding that litigation amounts to an abuse of process. This test has been most recently set out in the decision in Jacobson v. Skurka (2015 ONSC 1699), where Perell J. stated (at paragraph 75):

There are four elements to the tort of abuse of process: (1) the plaintiff is or was the subject of a lawsuit initiated by the defendant; (2) the defendant’s predominant purpose in initiating the lawsuit was to further some improper purpose collateral or outside the ambit of the legal process; (3) the defendant performed a definite act or threat in furtherance of that improper purpose; and (4) the plaintiff was caused to suffer some special damages unique to him or her.

[51] The Defendants in this case clearly meet the first part of the test. However, that is not enough. All of the elements of the test must be met. Most of the energies in argument were directed to the second and third branches of the test. I will review each in turn.

[52] On the second part of the test, the Defendants have argued that the purpose of this lawsuit was so that Lane could blame the Defendants for his own misconduct and control the fallout from that misconduct. There are two flaws with this argument. First, there is no explanation pled as to why Lane had to commence this action at this time, or how commencing this action would allow him to blame the Defendants for his misconduct. Second, and more importantly, there is clearly a proper purpose for this action. The purpose of the lawsuit, on its face, is to protect TSI’s commercial interests, which is a legitimate and proper purpose.

[53] It must be remembered that, for the tort of abuse of process to be made out, the predominant purpose of the litigation must be a collateral and improper one. Given that, on its face, the purpose of this litigation is to protect TSI’s commercial interests, it is impossible to conclude that the predominant purpose is a collateral and improper one.

[54] I conclude, therefore, that the second element of the test for an abuse of process claim cannot be met by the Defendants in this case, and that this action should be dismissed under Rule 21.01(1)(b), as it is plain and obvious that this action will not succeed.

[55] I am fortified in my conclusion by the one part of Ricchetti J’s decision that is relevant on the determination of this motion. Ricchetti J. concluded that the Plaintiff has a strong prima facie case. This conclusion has not, as far as I am aware, been appealed to the Divisional Court.

[56] I acknowledge the Defendants’ position that a finding of a prima facie case is generally irrelevant on a pleadings motion. However, in this case on this issue it is relevant because the Court has already reviewed the available evidence and offered its conclusions on a point that materially affects the Defendants’ arguments on abuse of process. Given the judicial conclusion that the Plaintiff is advancing a strong prima facie case, it will be impossible for any Court to conclude that, by advancing that strong prima facie case, the Plaintiff had engaged in an abuse of process.

[57] This is equally true of the claim even if it is advanced by Mr. Lane personally. If he had advanced the claim personally, he would still be pursuing the corporation’s interests, and would also have had a strong prima facie case. The claim would not meet the test for an abuse of process as set out above, and the same conclusion that I reached in the previous paragraph would also apply to any similar claim advanced by Mr. Lane personally.

[58] I should also deal briefly with the third part of the test, which is whether TSI performed a definite act or threat in furtherance of the alleged improper purpose. The Defendants argue that TSI wrongfully terminated Mr. Nielsen and Mr. Formosa and that this was part of their improper purpose. The problem with this argument is that the alleged wrongful dismissals are part of the Defendant’s counterclaims. They were also one of the steps that TSI allegedly took to protect its commercial interests. As a result, the allegations relating to wrongful and or constructive dismissal are part of the litigation, and the third part of the test would not be met either.

[59] To put it another way, there are two possible outcomes on the wrongful and constructive dismissal allegations. First, a Court could find that TSI had the right to terminate the employment of Mr. Formosa and Mr. Neilsen, in which case no damages would be payable, and no abuse of process would exist. Second, a Court could find that TSI did not have the right to terminate the employment of Mr. Formosa and Mr. Neilsen, in which case damages are recoverable within the litigation. In either case, it is a question that is determined within the litigation, and involves deciding who is correct.

[60] The abuse of process allegations are, therefore, struck without leave to amend the Statement of Claim or to bring a further claim on this basis against Mr. Lane. I make no comment about whether underlying facts related to the abuse of process claim are irrelevant to either the counterclaim for wrongful dismissal or any other claims that the Defendants may wish to bring against Mr. Lane personally.

Issue #4 - Should the Defendants’ Claim Relating to Clean Hands Be Struck Under Rule 21?

[61] Again, the answer is yes. When the test under Rule 21 is applied, it is plain and obvious that there is no merit to the Defendants’ defence.

[62] The Defendants argue, at paragraph 55 of their Statement of Defence:

It is a well-established principle in equity that the Plaintiff must come forth with clean hands if he is to be entitled to any equitable remedy. As plead, the facts bear out that Lane has been engaged in many acts of bad faith to the detriment of the Defendants and to the detriment of TSI. It is inequitable to construe any conduct of the Defendants without reference to the context established by Daniel Lane’s impositions, fiduciary breaches and fraudulent conduct.

[63] In essence, their argument is that the conduct of Mr. Lane is grounds for finding that TSI cannot seek remedies in equity in this case. This argument is based on the conduct of Mr. Lane as pled, as well as the fact that Mr. Lane is currently the controlling mind of TSI. I will deal with each argument in turn.

[64] The Defendants point me to the 1669 decision of Jones v. Lenthal, in which the Master of the Rolls stated:

For though the Rule be, That he who has committed Iniquity (as here, in the false Answer) shall not have Equity.

[65] This statement has been subject to much interpretation in the last three hundred and fifty years. In 1969, our Court of Appeal considered this maxim in Toronto (City) v. Polai (, [1970] 1 O.R. 483). Schroeder J.A. cited Jones v. Lenthal, and stated (at paragraph 46):

The misconduct charged against the plaintiff as a ground for invoking the maxim against him must relate directly to the very transaction concerning which the complaint is made, and not merely to the general morals or conduct of the person seeking relief.

[66] Recently, our Court of Appeal has considered the issue in BMO Nesbitt Burns Inc. v. Wellington West Capital Inc. (, 77 O.R. (3d) 161). In that case, the Plaintiff, BMO, brought an action against a competing brokerage firm, alleging that the Defendant had aggressively recruited BMO’s employees and had induced them to breach their contracts. The Defendant, Wellington West, claimed that BMO had engaged in the same type of recruiting practices, did not have clean hands, and could not seek equitable relief.

[67] In dismissing Wellington West’s claims, the Court cited Sharpe J.A.’s text, Injunctions and Specific Performance, and went on to state:

The author makes it clear through the authorities cited that the misconduct complained of must have secured a person an advantage in the very contract sought to be enforced. It is not a doctrine admitting of a general moral assessment of the plaintiff.

(Emphasis added)

[29] It seems to me that the requirement of a direct connection between the plaintiff’s conduct and the contract to be enforced is sensible. Even at the pleading stage, permitting the defendants to argue a broader connection based on the plaintiff’s general recruiting practices is not justified. And, as I have said, the defendants do not allege any direct connection. In seeking to rely on the clean hands doctrine, they do not allege that Nesbitt Burns breached its contractual obligation to any of the defendants or that it otherwise behaved inequitably towards any defendant. Because the defendants’ pleadings do not come within the scope of the clean hands doctrine set out by this court. I see no error in the motions judge’s ruling on this issue. Therefore, I would not give effect to this ground of appeal.

[68] In other words, the Defendants can only rely on this doctrine to defeat the Plaintiff’s claim in equity if they can link the Plaintiff’s misconduct directly to the same transaction where equitable relief is claimed.

[69] As against the Plaintiff TSI, the Defendants argument has two fatal flaws. First, and most importantly, as I read the Defendants pleading, there is no allegation against TSI. The complaints of misconduct made by the Defendants all relate to the alleged misconduct of Mr. Lane, both before and after he became the directing mind of TSI. The Defendants have not pointed to any misconduct of TSI to support their claims.

[70] As a result, it appears to me that the Defendants have no chance of success in their clean hands defence against TSI. However, the Defendants argue that I should consider the conduct of Mr. Lane in assessing the clean hands defence.

[71] This brings me to the Defendants’ main argument on the clean hands defence. This argument is, in essence, that I should pierce the corporate veil and look at the conduct of Lane in assessing whether TSI should be entitled to claim equitable relief. In support of this proposition, the Defendants point me to the decisions in Three Ports Fisheries v. Jeffrie (2014 NSSC 228) and In Plus Group Ltd. v. Pyke ([2002] EWCA Civ 370). In my view, both cases are distinguishable from the case at bar.

[72] I consider the Three Ports Fisheries decision first. That was a case in which a Mr. Henderson and a Mr. Jeffrie jointly owned a business that sold their fishing catches. They owned it with a third party who was ultimately bought out before the dispute arose.

[73] Ultimately, the dispute between Mr. Henderson and Mr. Jeffrie could not be resolved. Mr. Henderson refused to let Mr. Jeffrie buy his shares and would not sell Mr. Jeffrie his shares. When Mr. Jeffrie set up his own fishing brokerage business, Three Ports (which was now controlled by Mr. Henderson) brought a lawsuit claiming that Mr. Jeffrie had breached his fiduciary duties to Three Ports.

[74] The Court found, in the circumstances, that it would be unfair and inequitable to hold Mr. Jeffrie to a fiduciary duty as an owner and a director of the company. In essence, the Court concluded (at paragraph 39) that Mr. Jeffrie could be held hostage indefinitely if he was bound to a fiduciary duty to the company by the partner that he had founded the business with.

[75] A key distinction in this case is that Mr. Lane was never a business partner with either Mr. Neilsen or Mr. Formosa. Mr. Neilsen and Mr. Formosa were always employees of TSI, as was Mr. Lane until August of 2014. Although there was a period of time when Mr. Lane owned shares, I do not see any pleading that Mr. Neilsen or Mr. Formosa owned shares. As a result, the relationship between the individuals in this case is not the same close, personal business relationship that caused the Court to look behind the corporate veil in Three Ports.

[76] Mr. Lane was never in a partnership or other relationship with Mr. Neilsen or Mr. Formosa. He became the owner of a business that employed them shortly before the termination of their employment. This difference in context is a significant distinguishing feature.

[77] In addition, the bulk of Mr. Lane’s alleged conduct that the Defendants are complaining about took place before he became the directing mind of TSI. This is to be contrasted with the Three Ports case, where the conduct of Mr. Henderson was entirely related to, and took place during, the period when he owned the business jointly with Mr. Jeffrie.

[78] For these reasons, I do not see the decision in Three Ports as applying in this case. The decision in In Plus Group can be more briefly dealt with. It is a case that is quite similar to Three Ports. Indeed, at paragraph 82 of Three Ports, Boudreau J. noted that the facts of the two cases were very similar.

[79] Given this observation, many of the same distinguishing factors between Three Ports and the case at bar also apply to In Plus Group, and I distinguish that case on the same grounds.

[80] In the result, unless the conduct of Lane or TSI relates directly to the events resulting in this litigation, they are not relevant to this case and cannot be supported.

Issue #5 - Does the Nature of the Claim Provide the Defendants with More Latitude?

[81] In my view it does. Part of the Plaintiff’s motion is that the language the Defendants have used in their pleading is scandalous or embarrassing. However, when the Plaintiff’s claim is reviewed, there are a number of paragraphs containing a number of very aggressive pleadings that are framed in firm and assertive language. A couple of examples will suffice:

a) In describing the creation of iF2, at paragraph 54 the Plaintiff says “iF2 was clandestinely created to unfairly compete against TSI by illicitly using…” b) In providing a summary of the Plaintiff’s view of the facts, the Plaintiff states (at paragraph 106) that “Formosa and/or Neilsen have also nefariously removed, hidden or destroyed certain TSI documents…. In order to harm TSI and impede justice.”

[82] It is clear from reading the Plaintiff’s claim that it believes it has some significant grievances as a result of the Defendants’ conduct. However, in assessing the Defendants’ pleadings, the Court must be cognizant of both the content and the style of the Plaintiff’s pleadings. A firm and assertive Claim may allow the Defendant more latitude in its choice of language responding to the Claim. Certainly, the Court must be more cautious before striking a pleading out based on a party’s choice of language when the party moving to strike the pleading has also used strong language.

[83] That is not to say that everything is permissible. For example, the Court still has a responsibility to ensure that pleadings are not embarrassing (as defined in Parker v. Pfizer Canada Inc. (2011 ONSC 5169) at paragraphs 27-30), or contain inflammatory and unsupported attacks on the integrity of one of the parties (see George v. Harris [2000] O.J. No. 1762). However, in this case, it is more appropriate to review the pleadings under Rule 21.

[84] I have considered all of these principles in assessing the individual pleadings in this case.

The Individual Paragraphs

[85] I will review each of the paragraphs in the Statement of Defence that the Plaintiff is challenging. First, however, there is a question about the fact that Mr. Lane is not named by the Defendants as a third party.

[86] As I have set out above, the Plaintiff is a corporation, and it has a separate identity from Mr. Lane, who I understand is its directing mind at this point. However, Mr. Lane was not the directing mind of the corporation at the time that many of the allegations that are made against him took place. Indeed, many of the allegations that are made against Mr. Lane are, if proven, properly complaints of the Corporation that he now controls.

[87] If the Defendants wish to advance these (or other) allegations against Mr. Lane as reasons for their own conduct, then it will be necessary for them to bring a third party claim against Mr. Lane personally. Leave is given to bring that claim within sixty (60) days of the date of these reasons. I make no comment about whether that fresh pleading will require a further pleadings motion or a further motion under Rule 21. As a result, where I have struck pleadings relating to Mr. Lane, they are without leave to amend the pleadings in this action but with leave to bring a third party (or other) claim against Mr. Lane personally.

[88] I now turn to the specific paragraphs. To the extent that the Defendants have argued that certain paragraphs should remain because of the “clean hands” defence or the abuse of process defence, I have not addressed those arguments with respect to specific paragraphs because those arguments have been dismissed.

Paragraphs 14 and 15

[89] The Plaintiffs have challenged excerpts from paragraphs 14 and 15 of the Statement of Defence. The Defendants state that those paragraphs should remain because they relate to the reasons why Lane required certain documents to be signed, as well as the fact that the issues brought up in these paragraphs were also discussed in the Statement of Claim. Finally, the Defendants argue that these items are relevant to the wrongful dismissal and constructive dismissal claims brought by some of the individual Defendants.

[90] I reject these arguments, with the exception of the argument relating to the wrongful dismissal and constructive dismissal arguments. I agree with the Plaintiff that, by and large, the impugned sections of these paragraphs are an attack on Mr. Lane on the basis of the clean hands and abuse of process doctrines and they should be struck.

[91] Given the fact that the wrongful dismissal and constructive dismissal claims are being advanced, the Defendants have leave to amend these paragraphs to address the wrongful and constructive dismissal issues. However, in making such amendments, the Defendants must ensure that the pleadings are relevant to their cause of action for wrongful and constructive dismissal.

[92] I should also address, at the outset of this analysis, the claims by the Defendant that they can include items in their pleadings because of the content of Mr. Lane’s affidavit on the motion for the injunction and Anton Piller Order. I reject this assertion wherever it is raised by the Defendants. Affidavits are not pleadings, and are not subject to the same legal tests as pleadings. While paragraphs of Affidavits can be struck on the basis of irrelevance, pleadings deal with material facts, while Affidavits set out evidence. In addition, the Statement of Defence is designed to respond to the Statement of Claim and not to Affidavits sworn in the case.

Paragraph 20

[93] The Plaintiff challenges this paragraph on the basis that it makes claims against Ms. Maguire, who was Mr. Huggins’ widow, and who is not a party to the action. The Defendants argue that this paragraph should survive because it is directly responsive to the allegations in the Statement of Claim.

[94] Other than the abuse of process and clean hands arguments, I do not see how this paragraph is relevant and it is struck without leave to amend. I note that I have not addressed the question of whether an action is going to be brought against Ms. Macguire, and make no comment about whether these allegations would be appropriate in such an action. Until and unless she is added as a third party to this action, however, I see no legal basis for permitting claims against her unless they are otherwise relevant.

Paragraphs 23 to 37, and 40 to 42

[95] The Plaintiff seeks to have these paragraphs struck on the basis that neither Mr. Lane nor Ms. Maguire have been added as parties, and that these pleadings are irrelevant and embarrassing.

[96] The Defendants oppose this relief on the basis that the impugned paragraphs are responsive to allegations made by the Plaintiff, they support the Defendants’ counterclaims for wrongful and constructive dismissal, and that they are elemental to the larger narrative.

[97] I reject the Defendants assertions. These paragraphs appear, as described by the Plaintiff, to be an attack on Mr. Lane and Ms. Maguire. They also do not appear to be relevant to any of the issues raised in the Statement of Claim or in the Counterclaims for wrongful dismissal.

[98] Again, these paragraphs are struck without leave to amend, except to the extent that the Defendants may amend their pleadings to address any issues that are relevant to their claims for wrongful and constructive dismissal.

Paragraphs 45, 47, 48 and 52

[99] The Plaintiff seeks to have various words struck from these paragraphs on the basis that the language is inflammatory and adds nothing to the defences raised by the Defendants. The Plaintiff also notes, with respect to the word “ambushed” that Ricchetti J. made a different finding, and found that they were “caught in the act”. Ricchetti J. has made no such finding on a final basis.

[100] While I view the language of the Defendants’ pleading as being quite aggressive in these paragraphs, I am of the view that I should not strike the impugned sections. I take this view because of the language in the Plaintiff’s own pleading. My decision on this point should not be taken as either implicit or explicit support of any of the other arguments made by the Defendants to support the impugned paragraphs.

Paragraphs 54 and 55

[101] The Plaintiff seeks to have these paragraphs struck on the basis that these paragraphs are irrelevant. On reviewing these paragraphs, it is clear that their purpose is to advance claims relating to the clean hands and abuse of process doctrines. Once those claims have been dismissed, these pleadings serve no useful purpose and should be struck.

[102] This brings me to one argument that the Defendants advanced on a number of occasions. The Defendants state that these (and many other) paragraphs are a direct response to the Plaintiff’s narrative about the events in the summer of 2014. I reject this argument.

[103] The paragraphs from the Statement of Claim that set out the events in the summer of 2014 relate to the fact that Ms. Maguire entered into negotiations to sell TSI to Neilsen and Formosa and then decided to sell the company to Lane. There are three paragraphs in the Statement of Claim, all of which are short, factual and quite neutral. The Defendants claim that they need to set out their responding narrative.

[104] I reject that assertion. Once the claims of abuse of process and the clean hands doctrine are dismissed, the impugned paragraphs are not responsive to the Plaintiff’s description of the events of the summer of 2014. They raise irrelevant facts (at least as against TSI), and should not survive.

[105] These paragraphs are struck without leave to amend except with respect to the wrongful and or constructive dismissal allegations.

Paragraphs 87 to 89

[106] The Plaintiff is challenging these paragraphs for the same reasons as they have advanced for challenging all of the other paragraphs.

[107] The Defendants arguments for having these pleadings remain in the Statement of Defence are generally similar to the arguments they have advanced on the other paragraphs. Having reviewed these arguments, I am of the view that the paragraphs should be struck, with leave to amend to address the issues of wrongful and or constructive dismissal.

Disposition

[108] For the reasons set out above, the following Orders are to issue:

a) The Defendant’s defences of abuse of process and “clean hands” are dismissed pursuant to Rule 21. b) Based on the findings in these reasons, and the Order in paragraph (a), paragraphs 14, 15, 20, 23 to 37 inclusive, 40 to 42 inclusive, 54, 55 and 87 to 89 inclusive of the Statement of Defence are struck out without leave to amend except with respect to the claims for wrongful and or constructive dismissal being advanced by the Defendants.

[109] The Plaintiff’s costs submissions are due within fourteen (14) days of the date that these reasons are released. The Defendants’ costs submissions are due within fourteen (14) days after the Plaintiff has received the Defendants’ costs submissions. None of these submissions are to be longer than two (2) single spaced pages, excluding bills of costs and offers to settle.

[110] There shall be no reply submissions on costs without leave of the Court.

LeMay J. Released: June 8, 2016