Honest Art, Inc. v. Decode Entertainment Inc.
CITATION: Honest Art, Inc. v. Decode Entertainment Inc., 2017 ONSC 4740
COURT FILE NO.: CV-09-00390268
MOTION HEARD: 20170724
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Honest Art, Inc., Plaintiff, Defendant to the Counterclaim
AND:
Decode Entertainment Inc., Defendant, Plaintiff by Counterclaim
BEFORE: Master B. McAfee
COUNSEL: Tim Gleason, Counsel to Counsel for the Moving Party, the Defendant, Plaintiff by Counterclaim, Decode Entertainment Inc.
Allison Thornton, Counsel for the Responding Party, the Plaintiff, Defendant to the Counterclaim, Honest Art, Inc.
HEARD: July 24, 2017
REASONS FOR DECISION
[1] This is a motion brought by the defendant, plaintiff by counterclaim Decode Entertainment Inc. (Decode) for leave to amend the amended amended amended statement of defence and counterclaim in the form attached at Schedule “A” to the notice of motion.
[2] The proposed amendments are set out at paragraphs 22, 24 and 25 of the proposed amended pleading. The plaintiff Honest Art, Inc. (HAI) does not oppose the proposed amendments at paragraph 24 of the proposed amended pleading. On an unopposed basis, leave is granted with respect to the proposed amendments at paragraph 24 of the proposed amended pleading. The plaintiff opposes the proposed amendments at paragraphs 22 and 25 of the proposed amended pleading.
[3] Rule 26.01 of the Rules of Civil Procedure states:
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.
[4] The issue on this motion, as argued orally, is whether the contested proposed amendments constitute a new cause of action. The HAI argues that the contested proposed amendments constitute a new cause of action and are statute barred.
[5] A court will not grant leave to amend where the new allegations proposed to be added to a pleading raise a new cause of action after the expiry of the applicable limitation period (1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 (Ont. S.C.J.) at para 33).
[6] The court will apply a factually-oriented approach to what constitutes a new cause of action. When a responding party asserts that an amendment raises a new cause of action after the expiry of a limitation period, “…the court’s usual analytical approach is to consider the constituent elements of the alleged new cause of action to see if the facts as originally pleaded, or as better particularized in the proposed amended pleading, could technically sustain that cause of action” (1309489 Ontario at para 24).
[7] In Beauchamp v. Gervais, 2015 ONSC 5848 (Ont. S.C.J.) at para 23, Justice Healey provides a detailed summary of the circumstances in which courts will accept an amendment as arising out of the original claim:
The preceding authorities establish that in order to qualify as something other than a new cause of action the proposed amendments must, in substance, be: (i) an alternative claim for relief, or a statement of different legal conclusions based on no new facts or not going beyond the factual matrix from which the original claim arose; (ii) better particulars of the claims already made; (iii) a correction of errors in the original pleading; or (iv) the assertion of a new head of damage arising from the same facts. If the amendments cannot be characterized in one of these ways, the amendments should not be permitted, in order to not deny a defendant the right to rely upon a limitations statute.
[8] If no new facts are relied upon, the proposed amendment does not amount to a new cause of action (Beauchamp at para 21).
[9] In this case, at paragraph 22 of the proposed amended pleading, Decode proposes to increase its counterclaim for damages for breach of contract from $1 million to $7 million. Decode also seeks to amend the proposed amended pleading by adding paragraph 25 to the counterclaim, which expressly sets out the claim for $7 million and references paragraphs 11 and 19 of Decode’s existing pleading.
[10] Decode’s existing amended amended amended statement of defence and counterclaim pleads at paragraph 11 that HAI failed to exploit the interactive, merchandising and licensing rights outside of Canada and the United States, causing HAI to breach the agreement from at least in or about 2003 onwards. At paragraph 19, Decode also pleads that HAI took no effective steps to pursue merchandising and licensing opportunities internationally, causing Decode’s losses. These claims form part of Decode’s defence and are incorporated in Decode’s counterclaim at paragraph 23. The existing counterclaim expressly alleges significant damages and states that the precise quantum is not known at paragraph 24.
[11] All of the facts supporting the claim for breach of contract were pleaded in the amended amended amended statement of defence and counterclaim. Decode’s proposed addition of paragraph 25 particularizes the damages arising from the breach that was previously pleaded. This falls into category (ii) as identified by Justice Healey in Beauchamp.
[12] In the amended amended statement of claim, HAI has already engaged Decode’s claim that HAI failed to exploit the series. At paragraph 17 of the amended amended statement of claim, to which paragraph 19 of the amended amended amended statement of defence and counterclaim specifically responds, HAI claims that HAI has lost opportunities to pursue merchandising and licensing internationally in its territories. The losses that HAI asserts were caused as a result of Decode’s breach of contract arise out of the same factual matrix as the losses that Decode pleads for itself at paragraphs 11 and 19 of the amended amended amended statement of defence and counterclaim. In HAI’s amended reply and defence to counterclaim at paragraph 4, HAI denies that it had an obligation to “maintain any rights in any territory.” The parties joined issue early in the litigation on the question of whether HAI had pursued its international opportunities and whether it was obligated to do so.
[13] In all of the circumstances, the proposed amendments do not constitute a new cause of action.
[14] HAI also argues that there is prejudice as a result of the delay in seeking the amendments. The motion is brought over 7 years into the action and over 2 years after examinations for discovery. A continued pre-trial is scheduled for August 31, 2017, and the trial is scheduled for November 20, 2017. In this regard, HAI relies on Family Delicatessen Ltd. v. London (City), 2006 CanLII 5135 (ON CA), [2006] O.J. No. 669 (Ont. C.A.). In Family Delicatessen the motion was brought approximately 16 years after the claim was issued and new causes of action were being alleged after the expiry of the limitation period. Unlike the circumstances in Family Delicatessen, the delay in the within action is not so long and the justification is not so inadequate that there is presumed prejudice that would result in a denial of the motion.
[15] If the plaintiff now wishes to obtain an expert report in response to Decode’s expert report that was served on or about March 21, 2017, this is not prejudice that cannot be compensated for by costs or an adjournment.
[16] Leave is accordingly also granted to amend with respect to the contested proposed amendments at paragraphs 22 and 25 of the proposed amended pleading.
[17] If leave to amend was granted, HAI seeks a term that there be a further examination for discovery of a representative of Decode with respect to the amendments and that the further examination for discovery be at Decode’s expense. Although he has no specific instructions, counsel to counsel for Decode does not believe that his client would object to a further examination for discovery with respect to the amendments but does not agree that any further discovery be at Decode’s expense.
[18] I am satisfied that a further discovery limited to the amendments is a reasonable term of the granting of leave to amend. If requested by HAI, there shall be a further examination for discovery of a representative of Decode, limited to the amendments. The issue of costs of the further examination for discovery shall be reserved to the trial Judge.
[19] If successful on the motion, Decode seeks costs of the motion in the all-inclusive sum of $5,586.00. If Decode is successful on the motion, HAI submits that there should be no costs of the motion. Decode was successful on the motion and is entitled to costs in the amount sought, which is a fair and reasonable amount that HAI could expect to pay for costs in all of the circumstances. I am satisfied that a different order other than payment within 30 days would be more just. Although it was not a sufficient reason to deny the proposed amendments, the proposed amendments were sought late in the day after Decode served an expert report outside of the timelines under the Rules of Civil Procedure. Costs are payable to Decode in the cause.
[20] Order to go as follows:
On an unopposed basis, leave is granted to amend the amended amended amended statement of defence and counterclaim with respect to the proposed amendments at paragraph 24 as set out at Schedule “A” to the notice of motion;
Leave is granted to amend the amended amended amended statement of defence and counterclaim with respect to the proposed amendments at paragraphs 22 and 25 as set out at Schedule “A” to the notice of motion;
If requested by HAI, there shall be a further examination for discovery of a representative of Decode on the amendments for which leave has been granted;
The issue of costs of any further examination for discovery is reserved to the trial Judge;
Costs of the motion are fixed in the all-inclusive sum of $5,586.00 payable by HAI to Decode in the cause.
Master McAfee
Date: August 4, 2017