Citation: Smith v. GCAT Group Inc., 2017 ONSC 5374

COURT FILE NO.: CV-12-469769

MOTION HEARD: 8 September 2017

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Henry Smith and Susyn Smith, Plaintiffs

AND:

GCAT Group Inc., Danial Hadizadeh and Akbar Hadizadeh, Defendants

BEFORE: Master Jolley

COUNSEL: Paul Starkman, Counsel for the Moving Party Plaintiffs Pavle Masic, Counsel for the Responding Party Defendants

HEARD: 8 September 2017

REASONS FOR DECISION

[1] The plaintiffs bring this motion for leave to amend their statement of claim to allege a breach by the defendants of minutes of settlement entered into by the parties in October 2014. The defendants take the position that the proposed amendments are barred by the Limitations Act, 2002, c.24.

The Facts

[2] In April 2011 the plaintiffs contracted with the defendants for the supply of certain building materials and the construction of certain walls, patios, handrails and related items on the plaintiffs’ property. The plaintiffs filed a statement of claim in December 2012 alleging that the material provided by the defendants (the “Original Stone”) was damaged and not in accordance with the samples provided.

[3] In October 2014 the parties entered into minutes of settlement to resolve the action. Pursuant to the minutes of settlement, the defendants were to provide and install new limestone railings, patio slabs and related materials (the “Replacement Stone”).

[4] As a term of the minutes of settlement, the plaintiffs were to review samples of the limestone (the “Sample Stone”) and approve them in writing, which I understand they did.

[5] During the week of 1 December 2014, the defendants delivered some if not all of the Replacement Stone to the plaintiffs’ home. Pursuant to the minutes of settlement the defendants were to complete the work by 30 December 2014, weather permitting. That did not occur. The plaintiffs immediately put the defendants on notice of the breach but continued to provide them with time to complete and remediate their work. By January 2016 the plaintiffs determined that the defendants were not going to complete the work. In December 2016 an expert retained by the plaintiffs tested a sample of the Sample Stone which the plaintiffs had approved, a sample of the Original Stone and a sample of the Replacement Stone. As a result of chemical testing done in January 2017 the plaintiffs discovered, they allege, that the Replacement Stone provided pursuant to the minutes of settlement was not the same as the Sample Stone they had approved. They allege it was of a lesser quality, is man-made rather than a natural stone and is not suitable to be used outside in Canada’s climate.

The Limitation Period Argument

[6] The defendants deny this is the case but they argue that the plaintiffs could have known the composition of the Replacement Stone with reasonable due diligence in December 2014 when the Replacement Stone was delivered to the plaintiffs’ property. They allege that the limitation period began to run by 5 December 2014 for the Replacement Stone allegations and by 31 December 2014 for the deficient work allegations as, by that date, the defendants had not completed the work in the time contemplated in the minutes of settlement.

[7] The defendants’ argument is premised on an obligation in contract or tort for the plaintiffs to test the Replacement Stone. It is not challenged, on this motion in any event, that only a chemical analysis could determine the composition of the Replacement Stone. The defendants first submitted that the plaintiffs had an obligation under the minutes of settlement to test the Replacement Stone. In their factum, they argued that the samples were “to be delivered for the express purpose of testing the quality of the Replacement Stone”. Neither that obligation nor that purpose is borne out by a review of the minutes of settlement. What the minutes provide is that the plaintiffs were to approve the Sample Stone, which they did. The plaintiffs say that, even if they had tested the Sample Stone, it would have been fine – the issue is that the defendants delivered Replacement Stone that was different than the Sample Stone which they had approved.

[8] If there was not a contractual obligation to test the Replacement Stone when it was delivered, the defendants take the position that testing was required in these circumstances given the history between the parties. The defendants argue that the plaintiffs had already commenced litigation against the defendants and alleged in the original claim that the defendants had delivered product that did not conform to the Sample Stone. With that backdrop, the defendants argue that it was illogical for the plaintiffs not to test product delivered by those same defendants. The argument advanced is that a “reasonable person with the abilities and in the circumstances of the plaintiffs” would have tested the Replacement Stone when it was delivered and the limitation period therefore runs from the date of delivery.

[9] The plaintiffs argue that they were proceeding in good faith under the minutes of settlement. While they did initially sue for delivery of faulty material, they settled, expecting the defendants to honour the terms of the minutes of settlement. They argue that they should not have had to be undertake testing to protect themselves against the defendants cheating them by either unwittingly or deliberately replacing what they ordered with non-compliant, substandard Replacement Stone.

The Law

[10] Rule 26.01 requires that an amendment to a pleading be granted unless there is prejudice that cannot be compensated for by costs or an adjournment. An amendment must be legally tenable to be permitted. The defendants take the position that the new allegations are not legally tenable as they are barred by the Limitations Act, 2002, c.24.

[11] The Limitations Act, 2002 provides that a claim is discovered on the earlier of 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 that the injury, loss or damage had occurred. (Section 5(1)(b)).

[12] The parties agree that the limitation period begins to run when the plaintiffs knew or ought to have known of the existence of the deficiency (Sabourin v. Proulx 2012 ONSC 4099). Where they disagree is when the plaintiffs “ought to have known” or, put another way, what constitutes “reasonable diligence” in this instance, needed to discover the materials facts that support the proposed claim (Lawless v. Anderson 2011 ONCA 102).

[13] The defendants argue that the plaintiffs ought to have known of the damage upon delivery of the Replacement Stone. They had an opportunity to test the product then and it was unreasonable not to do so given their allegations that the Original Stone supplied by these same defendants had been defective. They further argue that the plaintiffs were aware by 31 December 2014 that the minutes of settlement had been breached. While the plaintiffs could permit the defendants time to cure, they do so at their peril. The plaintiffs had to keep their eye on the clock and ensure that any action commenced was done so within two years of that date. While the defendants acknowledge that they were on site as late as August 2015 to “finish the work”, they argue that the plaintiffs cannot simply take no legal action and thereby extend the limitation period, even if the purpose of granting more time is to provide time to implement the settlement,.

[14] I do not agree that the claim can be said to be barred by the Limitations Act, 2002. While it is possible that the plaintiffs should have been suspicious of the defendants and should have been on guard against being cheated, it is equally possible that the plaintiffs entered into the settlement agreement in good faith and expected that the defendants were doing so as well.

[15] I grant the plaintiffs leave to amend their statement of claim in accordance with the proposed amended statement of claim filed by the plaintiffs and marked Exhibit “A” to the affidavit of Tracy Pearce sworn 6 June 2017. This is without prejudice to the defendants pleading that the damages alleged were reasonably discoverable earlier and are therefore barred by the Limitations Act, 2002.

Corollary Relief

[16] As a result of the increase in the quantum of the damages sought in their prayer for relief, the plaintiffs sought leave to file Form 76(A) to continue the action from its current simplified procedure path to the ordinary procedure. The defendants object on the basis that the increase in the quantum in the prayer for relief is arbitrary and abusive and that they would be prejudiced.

[17] This is unlike the case of Rizzi v. Great Atlantic and Pacific Company of Canada (1999) 1999 CanLII 15111 (ON SC), 46 O.R. (3d) 509 where the plaintiffs sought at trial to amend the quantum of their claim and move it from the simplified procedure. There the court held the defendants would be prejudiced by the amendment, as all steps to trial had been concluded. Here the defendants will be entitled to productions and discovery on the proposed amendments to properly respond. If the damages do fall within the simplified rules limit, as the defendants allege, then they will have the opportunity to argue that the plaintiffs should face the costs consequences imposed by Rule 76.13(3).

[18] I grant the order moving the matter to the ordinary procedure and grant leave to the plaintiffs to file Form 76(A) as required. The requirement for the form follows once leave is granted to amend the quantum of damages sought.

Cross Motion Relief

[19] The defendants brought a cross motion in which they sought an order that the action be dismissed as against the defendant Akbar Hadizadeh, which was to have been done as a term of the minutes of settlement. The plaintiffs advised that the order had not been taken out due to an oversight on their part and they undertook to do so.

[20] The defendants also sought an order that funds they paid under the minutes of settlement be returned to them. Both parties agreed to withdraw this portion of the cross motion for the time being.

Costs

[21] If the parties cannot agree on costs after a reasonable attempt to do so, they may file costs outlines along with written submissions on costs no more than three pages in length within ten days of this decision.

Master Jolley

Date: 11 September 2017