Court File and Parties

Court File No.: CV-12-455292 Date: 2016-09-20 Superior Court of Justice - Ontario

Re: Andrew Smith and O Handmade Paper Company Limited, Plaintiffs And: Dutton Brock LLP and Brian Brock and Eric Adams, Defendants

Before: S. F. Dunphy, J.

Counsel: John W. McDonald, for the Plaintiffs R. Leigh Youd, for the Defendants

Heard: September 19, 2016

Mid-Trial Endorsement

[1] After hearing the plaintiff began to lead the evidence of their principal witness, Mr. Smith, in chief, numerous objections were raised by the defendants to questions and answers being led. The defendants take object that the plaintiff is seeking to lead the witness into an examination of facts and issues that were not pleaded and form no part of the claim against them. As such, the questions were objected to on the basis of relevance.

[2] While I would not normally entertain extended argument on objections of relevance, particularly if the time consumed by arguing the point exceeds the time likely to be saved. However, the defendants had forewarned me of the issue at the opening of the trial – before I had sufficient context to appreciate the issues – and had raised the issue on a number of occasions as evidence began to be elicited from the witness. The time came where it was necessary to rule on the issue of relevance (or the necessity of a pleadings amendment) and I invited the parties to make full argument.

[3] Having heard full argument (both sides fully expected the issue to arise and had extensive materials ready for my review), I have ruled that the statement of claim as pleaded does not encompass the bulk of the claim the plaintiff is seeking to advance. I therefore ruled that the plaintiff is precluded from exploring those issues absent an amendment (the application for which shall be heard following release of these reasons). The following are the reasons for my ruling.

Background Facts

[4] The plaintiffs sued their lawyers for having commenced an action in 2004 when the plaintiff O Handmade Paper Company Limited was actually dissolved and had not yet been revived. Since the action so commenced was a nullity – and the defendants to that action had acquired rights by reason of the expiry of a limitation period before the plaintiffs discovered the error and revived the corporate plaintiff– revival of the corporation (which has now occurred) could not repair the problem.

[5] The defendants have frankly admitted their error as regards the corporate status issue. A corporate search was in fact performed in April 2004 shortly before the defendants issued the claim on behalf of the plaintiffs in May and, for whatever reason, the fact of dissolution was not noticed. The matter did not come up again until the defendant in that law suit raised it in October 2010 by which time any opportunity to avoid the application of limitation periods had long since evaporated.

[6] The plaintiff Andrew Smith is an artist one of whose chosen media involves the manufacture of paper through the pulping of fibre from various sources. His studio was formerly located in an industrial mill property that was once owned by the corporate plaintiff – a company wholly-owned by him. The studio formerly contained pulping machines, drying presses and other accoutrements of a small-scale manufacturing concern.

[7] In 1991, the plaintiffs lost possession of the studio when the mortgagee enforced the mortgage (whether by foreclosure or sale proceedings is not before me). In 1992, the mortgagee sold the mill to two (allegedly related) entities. I shall refer to them collectively as “Holdway” for the sake of convenience. The plaintiffs allegedly owned a significant volume of equipment that had not been removed from the mill. This was of value primarily to Mr. Smith and his art enterprise, having little commercial value otherwise. There are issues as to whether some or all of the equipment was abandoned (the sale having occurred some time following Mr. Smith having been dispossessed of the property and studio) or whether some of the equipment may have constituted fixtures. As shall be seen, these questions would be of potential relevance to this trial depending upon the outcome of my ruling.

[8] In or about 1993, Mr. Smith succeeded in gaining access to the mill for the purpose of removing a portion of the equipment still located there. I have not yet heard evidence as to why some but not all of his or his company’s property was not removed at this time. Once again, this evidence may be relevant to the question of abandonment should the issue be ruled to be relevant.

[9] The removed equipment was thereafter stored in a barn owned by members of the Walden family that Mr. Smith was allowed to use for storage purposes. He paid a relatively nominal ($35 per year) rent for use of the facility and renewed his arrangement annually. About two cube vans of material were moved having a value – as estimated by Mr. Smith – of about $60,000. I have yet to hear the evidence as to which of the two plaintiffs owned which portion of this equipment. However, the admitted documents suggest that at least some of the equipment was owned by Mr. Smith’s company O Handmade while the rest was owned by him personally (there is a suggestion that third company may also have owned a small amount as well – that is not material to this motion).

[10] Thus, from 1993 onwards, the equipment formerly used by the plaintiff to produce his art found itself divided between the mill (that he no longer owned or had access to) now owned by Holdway and the barn owned by the Walden family that he was paying to use for storage and had access to.

[11] In 1994, O Handmade was dissolved for failure to file corporate returns. Mr. Smith allegedly was unaware of this development and of course did not make his lawyers (the defendants Dutton Brock) aware of this fact either when he came to retain them in 2001.

[12] Mr. Smith, acting for himself, issued a statement of claim against Holdway in 1998 seeking a return of the equipment that remained at the mill as well as other damages on a number of grounds. He never served the claim. O Handmade was not a party to this 1998 action. The claim was issued out of the Kitchener court office. The claim is apparently still extant in the court system but of course leave would be required to serve it at this point. I express no view on that likelihood.

[13] In late 1997 Mr. Smith’s money order for storage at the barn was returned and by 1998 Mr. Smith learned that some or all of his equipment had been disposed of by the Walden family. I am deliberately omitting details of why the Walden family did this – the explanation is involved and is not material to the motion before me. Mr. Walden consulted at least two other lawyers between 1998 and 2001 looking to find ways to obtain a return of the plaintiffs’ property located at the Walden barn and at the Holdway mill. He sought to interest the police in his story without success.

[14] In 2001, Mr. Smith’s path took him to the defendant Dutton Brock’s door. It had by then been a decade since he had access to his former studio in order to produce art with the equipment he had formerly assembled. Dutton Brock considered the plaintiffs’ claims to recovery of the property held at the Holdway mill as well as the property located at the Walden barn. There is no doubt that their retainer extended to the full situation and not merely part of it.

[15] While the retainer extended to Mr. Smith’s (or his company’s) claims to the studio and all of the equipment once located there (and now divided between two locations), there is no common legal thread running through the claims the plaintiffs involving these two separate locations. The claim relating to the Holdway mill and its property considers questions of mortgage enforcement and title to land, fixtures and abandonment of chattels. The claim relating to the Walden barn on the other hand related to an express, if informal, storage agreement. There is no suggestion that the Walden family and Holdway were acting jointly in some fashion.

[16] Ultimately, Dutton Brock issued a statement of claim as against the Walden family alone in May 2004. Dutton Brock considered but did not pursue the idea of continuing with the action against Holdway started by Mr. Smith in 1998.

[17] There is no dispute that the action as commenced in May 2004 was in fact a nullity as regards the Walden defendants as regards the claim of the corporate plaintiff that was dissolved at the time.

[18] The defendants withdrew from the record in 2011 and Mr. Smith acted for himself initially. I omit a discussion of whether the defendants advised the plaintiffs promptly of the dissolution question when it was first brought to their attention – that is an issue in the litigation, but not relevant to this motion. For the same reason, I also omit a discussion of the circumstances surrounding the dismissal of the claim of the corporate plaintiff (not an issue) and the dismissal of the claim of the individual plaintiff (which is an issue).

[19] Following the dismissal of the Walden action in 2011, the plaintiffs brought this action (O Handmade having been, in the interim, revived).

The Statement of Claim

[20] The statement of claim in this action contains a defined term “Action” that means “the Notice of Action issued May 07, 2004 by Dutton Brock acting for both Smith and the Coproration and assigned action number 04-CV-268522-CM2 and all subsequent pleadings” (emphasis added).

[21] Paragraph 15 of the statement of claim pleads “On November 21, 2001, Smith and the Corporation retained the services of Dutton Brock to act as lawyers to prosecute the Action”. Paragraph 17 notes all of the steps taken in the Action “without [Dutton Brock] acquiring any knowledge as to the status of the Corporation as a dissolved Corporation”.

[22] Paragraphs 18-20 contain further allegations relating to Dutton Brock’s actions in relation to the question of the dissolved status of O Handmade, paragraph 20 pleading the dismissal of the Action on the basis of it being a nullity.

[23] Paragraph 22 then pleads particulars of Dutton Brock’s alleged negligence including:

a. “(a) Dutton Brock did not exercise the degree of skill and care of a reasonably competent lawyer in commencing the Action”

[24] With the exception of the general statement in paragraph 22(a), every single particular of negligence pleaded relates to directly to the matter of the dissolved status of O Handmade and Dutton Brock’s alleged failures in relation to that fact.

[25] Paragraph 22(a), by reason only of its extreme generality and lack of particulars, is the only allegation of negligence that cannot necessarily be constrained to the “Action” as against the Walden family. That ambiguity is resolved somewhat by the next paragraph that ties the damages suffered to the “defendants named” (i.e. the Walden family). Paragraph 23 pleads that “Dutton Brock’s negligent advice …denied Smith and the Corporation the opportunity to properly assess the Action by the Corporation against the named defendants” (emphasis added).

[26] Paragraph 28 includes a claim for punitive damages on the basis of 12 allegations of particulars. Each of the allegations of particulars said to justify punitive damages relates specifically to the issue of the dissolution of the corporation and Dutton Brock’s dealings in relation to that fact. The one (possible) exception is paragraph 28(l) that pleads as a particular of the claim for punitive damages “Dutton Brock knew or should have known that their failure to reasonably expedite the Action in any reasonable manner would prejudice Smith” (emphasis added). This ambiguous allegation does not relate to the corporate plaintiff.

Issues to be Argued

[27] Does the statement of claim plead facts sufficient to sustain a claim in negligence related to (i) failure to name Holdway as defendants in the Walden “Action”; or (ii) failure to pursue a claim against Holdway more promptly after the defendants were first retained in 2001?

Analysis and Discussion

[28] It is axiomatic that the statement of claim must contain a concise statement of the material facts relied on for the claim: Rule 25.06(1) of the Rules of Civil Procedure. It is not enough to argue that the defendants did not demand further and better particulars. As Perell J. noted in EnerWorks Inc. v. Glenbarra Energy Solutions Inc., 2012 ONSC 414 at para. 35: “[i]t is a fundamental principal of procedural justice that a litigant should have notice of the case against him or her”.

[29] In my view, the failure of the Action to have included claims against Holdway in relation to property in the Holdway mill or the failure to have proceeded with that proceeding promptly are both material facts that were not pleaded and ought to have been pleaded. Their absence is not a mere procedural defect but fundamentally alters the complexion, direction and scope of the litigation. I have outlined some of the issues that would require exploration in outlining the facts. There will be others. The defendants submit that they have only received the bulk of the plaintiffs documents relating to these additional claims by way of a “damages brief” following the pre-trial containing large numbers of documents not previously produced.

[30] The claim as pleaded against the defendants can only fairly be construed as relating solely to the consequences of having proceeded to bring a claim that the defendants ought to have known was a nullity and the allegation of having failed to disclose that fact sufficiently promptly. The additional claims now asserted, although allegedly arising from the same solicitor-client relationship, are of an entirely different order. Holdway was not a necessary or proper party to the Walden claim that was asserted in the “Action” and the causes of action that might have been asserted by the plaintiffs against these two separate defendant groups (Holdway and Walden) were and are entirely independent of each other.

[31] The plaintiff suggests that the defendants pleaded facts in relation to the mooted claims against Holdway in its statement of defence. I reject that suggestion for the same reasons that Master Glustein (as he then was) rejected a similar argument in Thompson v. Zeldin at para. 75-77. The raising of an issue in a defence does not elevate the matter to a claim in the action.

[32] The plaintiff submits that the claim pleads negligence in relation to the “Action” a defined term that includes “all subsequent pleadings”. The plaintiff submits that this is sufficiently broad to include the various amendments that Dutton Brock considered making to the Action but never in fact made.

[33] The argument is without any merit. “Subsequent pleadings” clearly refers to pleadings that were made, not those that were not. In the context of a Notice of Action, it clearly references the Statement of Claim that was required to (and did) follow. I cannot fairly interpret this claim in the manner suggested.

[34] The plaintiffs also suggest that his matter was raised at the pre-trial and in subsequent correspondence exchanged between counsel. In my view, this fact does not help the plaintiffs. All parties asserted at the pre-trial that no amendments to the pleadings were required. The plaintiffs did so with knowledge of the claimed deficiency in their claim as pleaded. They continued to maintain that position right up until the start of trial despite being given a very clear and concise statement of the defendants’ position. The plaintiffs had every opportunity to avoid costs being thrown away and to have sought an adjournment of the trial. They gambled on what I would view as a strained interpretation of the statement of claim and lost.

Disposition

[35] In the result, I am ruling irrelevant and inadmissible evidence relating to claims that might have been were not brought in relation to property at the Holdway mill. The plaintiff must bring a motion to amend its pleading at trial or proceed to try solely the claim as pleaded.

[36] The plaintiff has advised me that it will not elect to proceed with the claim un-amended. I shall therefore entertain a motion by the plaintiff to amend its statement of claim to include such claims and, if granted, will consider at that time what if any orders should be made in consequence. As I am only one half day into the evidence and I cannot predict when the parties will be ready for trial hereafter, I am not seizing myself of the trial should it be adjourned. To do so would risk introducing unnecessary delay.

S. F. Dunphy, J. Date: September 20, 2016