4197658 CANADA INC. v. THE ATLAS CORPORATION, 2017 ONSC 4711
MOTION HEARD: 2017/06/13
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 4197658 CANADA INC. v. THE ATLAS CORPORATION
BEFORE: Master Champagne
COUNSEL: Daria Strachan, for the plaintiff Barry Greenberg, for the defendant
ENDORSEMENT
1This motion is for an order permitting each party to serve and file amended pleadings in the context of an accounting dispute between the parties.
2The plaintiff 4197658 Canada Inc. (Waterford) operates a retirement residence in Barrie Ontario.
3The defendant, The Atlas Corporation (Atlas) is a construction management company for commercial sites.
Background
4Waterford retained Atlas to provide certain construction services pursuant to a contract signed by the parties in November 2011. The action pertains to an accounting dispute in which Waterford alleges that Atlas was overpaid. Atlas denies it was paid in excess of what it was entitled to.
5Waterford brings a motion to amend its Statement of Claim and Atlas brings a motion to amend its Statement of Defence. Waterford consented to Atlas’ request to amend its defence conditional on Atlas’ consent to Waterford’s request to amend its claim. Atlas refuses to consent to Waterford’s proposed amendment alleging that its amendment raises a new cause of action and runs afoul of the Limitations Act S.O. 2002 c. 24 (Limitations Act).
Evidence
6There is no dispute that the parties signed a contract in November 2011 for the provision of construction management services by Atlas to Waterford. Atlas provided certain construction services and overall construction management services with respect to the construction of Waterford’s retirement project in Barrie Ontario. As part of the financing of the project, Waterford advanced Atlas $281,403.90 for construction forming services which were subcontracted to Long Valley Forming. Long Valley Forming became insolvent during the project and at the end of the project in the Winter/Spring of 2014 a dispute arose between the parties regarding Waterford’s payment of $281,403.90 to Atlas.
7In March 2014, Waterford asked Atlas for an accounting of the funds it advanced to it. Atlas provided a number of different accounting summaries on three separate dates as follows:
April 3rd, 2014 Atlas claimed Waterford owed it $524,383.54
May 5th, 2014 Atlas claimed Waterford owed it $45,739.55
March 31st, 2015 Atlas claimed Waterford owed it $15, 857.97
This lead to a claim being issued against Atlas on May 22, 2015. At examinations for discovery on April 22, 2016, Atlas’ witness expressly stated that Atlas was not relying on the aforementioned summaries. Those numbers were revised to $17,322.77 by way of documentary disclose and further revised by Atlas’ discovery witness to $6,889.42. That witness undertook to provide Waterford with Atlas’ General Ledger which was received by Waterford on August 30, 2016.
8Waterford’s evidence is that it retained a forensic accountant to audit the General Ledger and it provided Atlas with a draft amended Statement of Claim on January 24, 2017 which purported to increase the amount of the claim from $281,403.90 inclusive of HST, to $515,000.00 inclusive of HST and added the following:
4A. The contract contained a Guaranteed Maximum Price (GMP) in the amount of $14,027.389.00. Pursuant to the contract, Atlas guaranteed that the cost of the services and work would not exceed the GMP.
In reviewing the documentation provided to Waterford by Atlas, additional billing and accounting errors have been identified.
In particular. Atlas overcharged Waterford on the Project with respect to, but not limited to, the following; administrative charges; services; materials; labour; and double billing of invoices.
Contrary to Article 8.3 of the contract, Atlas charged Waterford amounts in excess of the GMP.
Waterford claims reimbursement for all amounts charged to it by Atlas in excess of the GMP.
As such. the additional sum of $233.596.10 is claimed with respect to these breaches of the contract. Accounting and/ or invoicing errors.
9While Waterford’s original claim relates to an overpayment in relation to the forming contract, paragraphs 10, 11 and 13 of the original Statement of Claim reference overall billings on the contract and make clear that a proper accounting was not provided by Atlas. From the evidence, that accounting was never produced but instead Atlas produced its General Ledger in August 2016.
10Atlas’ evidence is that it was first advised of Waterford’s intention to amend its Statement of Claim in May 2016. On June 23, 2016, Atlas asked Waterford for a draft of the proposed amended Statement of Claim and was advised by Waterford on June 27, 2016 that to do so, it required answers to undertakings which included a full accounting of funds advanced to Atlas for the project. It is clear from the correspondence that Waterford advised that its proposed amended Statement of Claim would include overpayments and errors.
11On May 3, 2016 Atlas sought Waterford’s consent to the amendment of its defence and sent a draft Amended Statement of Defence which claimed set-off. I was not provided with a copy of the proposed Amended Statement of Defence but counsel for Atlas concedes that it claims set off against the entire contract.
12Atlas refuses to consent to Waterford’s proposed Amended Statement of Claim stating that it raises a new cause of action as the amendments relate to the entire contract and not just the forming sub-contract. Atlas’ position is that the original Statement of Claim relates only to the forming work.
13Atlas’ evidence is that by January 31, 2014 it had sent Waterford its last invoice which included an outstanding balance of $181,265.81 over and above the contract price. Atlas’ evidence is that Waterford was fully aware of all project costs at that time.
14Waterford is prepared to consent to Atlas’ Amended Statement of Defence so long as it is permitted to amend its Statement of Claim.
15In their material, neither party provides evidence of prejudice.
Issues
- Whether either or both parties should be granted leave to amend their pleadings.
Analysis
16Rule 26. 01 of the Rules of Civil Procedure R.R.O. Reg. 194 (Rules) governs the amendment of pleadings and directs that a court shall grant leave to amend a pleading at any stage of an action unless prejudice would result that could not be compensated for by an order for costs or an adjournment.
17The Ontario Court of Appeal in Marks v. the City of Ottawa, 2011 ONCA 248 para 19 sets out that while there is no absolute right to amend pleadings and the court has discretion to deny leave for a party to amend his/her pleadings, the general rule is that amendments to pleadings are to be presumptively approved with exceptions. The caselaw sets out those exceptions as follows:
Where a proposed amendment is shown to be scandalous, frivolous, vexatious or an abuse of the court’s process (Andersen Consulting v. Canada (2001) 2001 CanLII 8587 (ON CA), O.J. No 3576;
Where the proposed amendment discloses no cause of action (Andersen Consulting).
Where a proposed amendment discloses no issue worthy of trial and which is not prima facie meritorious (Marks);
Where the proposed amendment, if originally pleaded, would have been struck (Marks);
Where the proposed amendment is untenable in law (Marks).
Where the proposed amendment advances a claim that is statute-barred (Frohlick v. Pinkerton Canada Inc. 2008 CarswellOnt 66, 2008 ONCA 3 para 20 – 24)
18The outcome of this motion turns largely on the last exception.
19In its simplest terms, Waterford wishes to expand its claim to include a claim as against the entire contract rather than just in relation to the forming contract as set out in the original Statement of Claim. Atlas wishes to amend its defence to claim set-off as against the entire contract but will not agree to allow the plaintiff to amend its claim in relation to the entire contract arguing that it is statute barred from doing so.
20Waterford argues that it needs to amend its claim to properly reflect damages it incurred, of which it only became aware once Atlas provided answers to its undertakings. It submits that the proposed amendments do not raise a new claim. It further argues that the discoverability period is alive and well even if the amendments give rise to a new claim, as the General Ledger (delivered August 30, 2016) is the foundation on which the proposed amendments are based.
The Proposed Amendment to Waterford’s Claim
21Atlas’s position is that Waterford knew or ought to have known what its damages were by the end of January 2014 and that it should not be allowed to amend its claim because the proposed amendment gives rise to a new cause of action that is statute barred. It contends that Waterford had all of the information on the full cost of the contract by January 2014. It submits that the examinations for discovery and answers to undertakings did not provide any new information on which to base a new cause of action.
22On the evidence before me, it appears that Waterford had an inconsistent overall record of Atlas’ accounts by the end of January 2014. What it did not have was a definitive particularization of those accounts and Atlas does not deny giving Waterford different accounting summaries which ranged from an alleged debt by Waterford to Atlas of $524,383.54 to $15,857.97. Its witness at examinations for discovery said Atlas was not relying on those three different account summaries. It is not disputed that those numbers were revised to $17,322.71 by way of documentary disclosure and was further revised to $6,889.42 by Atlas’ witness on examinations for discovery. It is not disputed that Waterford did not receive Atlas’ General Ledger until August 30, 2016. Waterford’s evidence is that it had a forensic accounting done on the ledger and sent its draft Amended Statement of Claim to Atlas on January 24, 2017.
23Atlas argues that Waterford’s proposed amendments raise a new cause of action that runs afoul of that limitation period. In considering whether or not the proposed amendment constitutes a new cause of action, I am guided by Justice Lauwers in 1309489 Ontario Inc. (formerly known as Xincon Technology (Canada) Inc.) v. BMO Bank of Montreal et al. 2011 ONSC 5505, 2011ONSC 5505. Similarly to this case, Justice Lauwers considered whether to allow an amendment to a claim which the defendant argued exceeded the Limitations Act. He took a “broad, factually oriented approach to the meaning of the term “cause of action” and discouraged a technical approach. He adopted Master Short’s reasoning, as do I, in Brand Name Marketing Inc. v. Rogers Communications Inc. 2010 ONSC 2892, para. 84 as follows:
“if a defendant knows that the "finger of litigation" is pointing in its direction, and an action is commenced on a timely basis based on specific actions, this court ought to take appropriate steps to ensure that the true lis between the parties is addressed, rather than permitting one party to perhaps escape its possible liability by relying upon a technical Limitations Act defence.”
24This approach was endorsed by the Supreme Court of Canada in Cahoon v. Franks 1967 CanLII 77 (SCC), [1967] S.C.R. 455. In applying this broad approach to the definition of a cause of action, in my view, Waterford in its original claim, establishes the factual matrix on which the proposed amendment is founded. The Guaranteed Maximum Price was in the contract and the contract was pleaded in the original claim. Paragraphs 10, 11 and 13 of the original claim reference overall billings and an alleged lack of proper accounting. In the circumstances, I do not find that the amendment raises a new cause of action. If I am wrong, I nonetheless find that discoverability is a live issue for the trial judge. Section 4 of the Limitations Act S.O. 2002 c. 24 provides that a claim must be instituted within 2 years of its discovery. Section 5 of the act defines discovery as follows:
5 (1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 2002, c. 24, Sched. B, s. 5 (1).
25I reject the defendant’s argument that Waterford had all of the financial information it required to make its proposed amended claim in January 2014. Atlas, on the same financial information was unable to produce accurate accounting summaries and in fact produced different accounting summaries five times. This ultimately lead to the production of their General Ledger on August 30, 2016. The email exchanges between counsel make clear Waterford required answers to undertakings before it could provide a draft amended claim and it was only after the General Ledger was produced and a forensic audit of the ledger was performed that Waterford produced its draft amended claim. It is arguable that Waterford did not become aware of the extent of its claim until the General Ledger was produced. There is certainly sufficient evidence on discoverability that should be left to the trial judge, thus I am not prepared to find that the proposed amendments are statute-barred.
26In completing my analysis I go back to Rule 26.01 which directs the court to allow the amendment of a pleading unless to do so would result in prejudice that could not be compensated for by an adjournment or costs. Neither party gave evidence as to the prejudice it would suffer if the relief sought is granted. Atlas states it need not provide evidence of prejudice as prejudice is presumed by virtue of the fact that the limitation period was exceeded. As I am not prepared to make that finding, I reject this argument. If there is any prejudice to Atlas, in my view, it can be compensated for by costs or an adjournment. In the circumstances, Waterford shall be permitted to amend its claim.
The Proposed Amendment to Atlas’ Claim
27Atlas did not initially claim set-off in its defence. Its position is that it should be allowed to amend its defence to include set-off now. It argues that the proposed amendment does not run afoul of the Limitations Act as it is being used as a “shield” in its defence rather than as a “sword”. It purports to use set-off as a defence, rather than as a claim.
28In considering whether or not to allow Atlas to amend its pleadings, I note that Waterford was and is prepared to consent to the amendment so long as it would be permitted to amend its claim. As I am allowing Waterford to amend its claim there is no prejudice to it. It would have been unfair and prejudicial to allow Atlas to amend its defence without allowing Waterford to amend its Statement of Claim. To do so would have created an un-level playing field in that Waterford would have been limited to claiming on the forming contract while Atlas would have been permitted to set-off as against the whole contract. That would offend principles of fairness and create prejudice to Waterford that in my view could not be remedied with costs or an adjournment. In the result, Atlas is permitted to amend its Statement of Defence.
29In the circumstances both parties are granted leave to amend their pleadings as requested without prejudice to Atlas’ right to raise a limitation defence.
Costs
30As Waterford was entirely successful on this motion, and in light of Waterford’s conditional offer to agree to Altas’ amendment request Atlas shall pay Waterford costs in the sum of $3,500.00 inclusive of disbursements and HST, within 30 days.
Master Nathalie Champagne
DATE: August 03, 2017