Court File and Parties
CITATION: TSI Int. Group Inc. v. Formosa et al., 2017 ONSC 5398
COURT FILE NO.: CV-15-0694-00
DATE: 2017-09-11
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: TSI International Inc., Plaintiff
AND:
John Formosa, Steffen Nielsen, iFarmLocal Inc., Richard Taylor, Great Life Group Inc. and John Masih, carrying on business as MSM Group, Defendants
BEFORE: LeMay J.
COUNSEL: Robert Taylor, Counsel for the Plaintiff Tim Gleason, as agent for the Defendants on the Pleadings Issues. John Formosa, Steffen Nielsen, Richard Taylor and John Masih on their own behalf, and on behalf of the Corporations on the costs issue.
Endorsement
[1] This is the most recent in a long line of endorsements and decisions that I have released in this matter. It addresses the following issues:
a. Whether paragraph 20 and a portion of paragraph 21 of the Fresh As Amended Statement of Defence should be struck pursuant to Rule 25.11.
b. The costs of a motion relating to the Defendants’ claims of privilege over a certain number of documents.
[2] I will address each issue in turn.
Issue #1- The Pleadings Motion
a) The History of the Issue
[3] The Plaintiff brought a motion to strike a significant portion of the Statement of Defence before me on December 21st, 2015 pursuant to Rule 25. After reviewing the materials, it was clear to me that there were also issues that engaged Rule 21, and I directed the parties to file additional material and return before me on March 21st, 2016. The motion was argued at that time, and I considered both Rules.
[4] In a decision I released on June 8th, 2016, I struck significant portions of the Statement of Claim and dismissed the Defendants’ arguments relating to abuse of process and the clean hands doctrine. Most of the paragraphs I struck were struck without leave to amend.
[5] An appeal was taken from my decision to the Ontario Court of Appeal. In an endorsement issued on March 27th, 2017, the Court of Appeal found that leave to amend should only be denied in the clearest of cases, and allowed the appeal to the extent that the Defendants were entitled to amend their pleadings. The Court of Appeal did not address the substantive issues raised by the appeal.
b) The Impugned Paragraphs
[6] The parties appeared before me on April 19th, 2017. At that time, I ordered:
a. The Defendants to deliver their amended Statement of Defence by May 26th, 2017
b. The Plaintiffs to either provide a reply or advise that they were bringing a pleadings motion by June 5th, 2017.
[7] The Amended Statement of Defence was properly delivered within the time limit I had provided. However Plaintiff’s counsel did not advise the Defendants or the court until June 12th, 2017 that the Plaintiff was seeking to strike a paragraph in the Defendants’ Fresh as Amended Statement of Defence. The only explanation I was given as to the delay in providing this instruction was solicitor’s inadvertence.
[8] I reluctantly agreed that I would extend the time for the Plaintiff to advise as to their intentions respecting the Defendants’ Amended Statement of Defence. They have filed a motion record to strike paragraphs of the Amended Statement of Defence under Rule 25.
[9] The impugned paragraphs of the pleading state:
Beginning in or around late 2012, Huggins discovered that Lane had misappropriated or converted property that belonged to investors and/or another TSI entities. This led to the falling out between Huggins and Lane, described in paragraph 30 of the statement of claim, and the transfer of ownership of TIG from Lane to Huggins.
As a result of Lane’s misconduct, the duties of Lane with respect to the TSI business model were significantly curtailed and effective 2013, his duties were limited to land acquisition matters. Steve Berry assumed the role of chief operating officer.
[10] The Motion was argued before me on July 27th, 2017.
c) The Plaintiff’s Position
[11] The Plaintiff asserts that the two paragraphs should be struck from the pleadings for the following reasons:
a. The paragraphs raise irrelevant issues.
b. If allowed to remain in the pleading, the paragraphs will unnecessarily delay the trial and will open up significant avenues of inquiry into irrelevant issues on discovery.
c. The paragraphs repeat allegations that were struck out in my June 8th, 2016 decision, and the Court of Appeal upheld my reasons.
d. The paragraphs allege misconduct on the part of Mr. Daniel Lane when he was not a directing mind of TSI.
e. Damages are not claimed as a result of the conduct alleged in these paragraphs.
d) The Defendants’ Position
[12] The Defendants assert that the impugned paragraphs should remain in the Statement of Defence for the following reasons:
a. The facts set out in the impugned paragraphs are directly responsive to facts set out in the Plaintiff’s Statement of Claim.
b. Under Rule 25, pleadings should only be struck in the clearest of cases, and this is not such a case.
c. The impugned paragraphs are clearly relevant to the case. In particular, they relate to both the Plaintiff’s allegations of “primary purpose” conspiracy and the Defendants’ counterclaims of constructive and wrongful dismissal.
d. The Defendants may be entitled to damages for bad faith if an ulterior motive for the termination of their employment can be established.
The Law and Analysis
[13] The Plaintiff moves under Rule 25.11 to have the impugned paragraphs struck. The authorities have held that a motion to strike a pleading under this Rule should only be granted in the clearest of cases (see Air Canada et. al. v. WestJet Airlines Ltd. et. al. ((2004) 2004 CanLII 66339 (ON SC), 72 O.R. (3d) 669 at paragraph 6(a)).
[14] The factors to be considered by a court in adjudicating a claim under this Rule are set out in a number of cases. For example, in Carney Timber Co. v. Pabedinskas (2008 CanLII 63163 (ON SC), [2008] O.J. No. 4818), Strathy J. (as he then was) set out the test as follows:
- Rule 25 was examined by Madam Justice Epstein in George v. Harris, 97 A.C.W.S. (3d) 225, [2000] O.J. No. 1762 (Ont. S.C.J), particularly at paras. 19-23 and by Madam Justice Molloy in Brodie v. Thomson Kernagham & Co., [2002] O.J. No., 1850, 27 B.L.R. (3d) 246 (Ont. S.C.J), particularly at paras. 26-28. I would summarize their observations as follows:
• a fact that is relevant to a cause of action cannot be scandalous, frivolous or vexatious:
• a pleading that has no material facts is frivolous and vexatious;
• a pleading that is superfluous or can have no effect on the outcome of the action is scandalous, frivolous and vexatious;
• portions of a pleading that are irrelevant, argumentative, inserted only for colour or are bare allegations without material facts in support, will be struck as scandalous;
• a pleading that is purely argumentative will be struck out;
• a pleading that contains unfound and inflammatory attacks on the integrity of a party, and speculative and unsupported allegations of defamation will be struck as scandalous and vexatious;
• a pleading may be struck on the ground that it may prejudice or delay the fair trial of the action where the probative value of the evidence would be outweighed by the time and effort involved and would seriously interfere with the fair and focused trial of the issues;
• striking a pleading on the ground that it may prejudice or delay the fair trial of an action is an exercise in discretion – the court must balance the added complexity of the pleadings against the potential probative value of the facts alleged;
• pleadings that are replete with conclusions, expressions of opinion and contain irrelevant matters will be struck in their entirety; and
• pleadings that are clearly designed to use the judicial process for an improper purpose are an abuse of process – these include harassment and oppression of other parties by multifarious proceedings, the re-litigation of issues previously decided and the litigation of matters that have been concluded.
[15] My analysis in this case starts from the fact that the impugned paragraphs directly respond to an allegation at paragraph 30 of the statement of claim that “Lane and Huggins had a falling out in 2012.” It is clear on reading paragraphs 20 and 21 of the Amended Statement of Defence that these paragraphs are offered as an explanation as to why Lane and Huggins had the falling out described in the Plaintiff’s Statement of Claim.
[16] The case law is clear that pleadings of historical fact can be struck out, even if those facts are true, if they have no relevance to the proceeding. On this point, see CN Railway v. Brant (2009 CanLII 32911 (ON SC), [2009] O.J. No. 2661 at paragraph 28). As a result, the Defendants have to demonstrate that these pleadings are at least marginally relevant to the issues before the Court.
[17] In my view, the Defendants have demonstrated that these allegations are relevant to the issues before the Court. On the pleadings that are before me, the question of why Mr. Lane had a falling out with Mr. Huggins in 2012 is arguably relevant in three ways, as follows:
a. The explanation may be relevant to why Mr. Lane, who is now the principal of the Plaintiff, had friction in his relationships with the Defendants.
b. The explanation of why Mr. Lane had friction in his relationships with the Defendants is at least arguably relevant to the primary purpose conspiracy allegations made by the Plaintiffs. Specifically, the question of whether the Defendants engaged in a conspiracy because they were disappointed purchasers may turn, in part, on the question of whether they wanted to buy TSI or not. Their interest in purchasing TSI may, in turn, be related to what the Defendants knew at the material times about the reasons behind the falling out between Mr. Lane and Mr. Huggins.
c. The allegations of wrongful and constructive dismissal also, on the pleadings, may be related to the friction between Mr. Lane and the Defendants. The reasons for that friction may be relevant to the questions of whether the Defendants were wrongfully or constructively dismissed and to the issue of damages.
[18] Although it is not clear as to whether the facts pled in the impugned paragraphs will be relevant, I cannot say that they will not be relevant. Therefore, these allegations cannot be struck from the Statement of Defence.
[19] I will briefly address two other arguments that Mr. Taylor made. First, there is his assertion that the Court of Appeal upheld my reasoning and that the impugned paragraphs should not be allowed because they are a repetition of what appeared in the paragraphs I struck out. There are two responses to this assertion. First, the Court of Appeal expressly did not deal with the merits of the case. Second, while the impugned paragraphs may raise similar issues, the pleading is much clearer and, as noted above, appears to have some relation to the issues in the case.
[20] Then, Mr. Taylor argued that opening up the relationship between Mr. Huggins and Mr. Lane could significantly lengthen the discovery process and the trial with irrelevant issues. There are two responses to that argument. First, the issue was originally raised in the Statement of Claim, so the Defendants should be entitled to respond to it. Second, I am case-managing this action. Any problems associated with overly broad discovery (or cross-examination) questions can be addressed through the parties’ regular appearances before me.
[21] In the result, the Plaintiff’s motion to strike paragraphs 20 and the first few words of paragraph 21 is dismissed. The Plaintiff shall have ten (10) days from today’s date to deliver their reply, if any. After that time, pleadings are closed.
Issue #2- The Costs Issue
[22] In an endorsement dated June 14th, 2017, I confirmed that the Defendants had properly asserted a claim of privilege over a few documents. I asked for submissions on costs.
[23] The Defendants seek costs in the amount of $2,000.00 inclusive of HST and disbursements on the basis that Mr. Formosa was required to prepare the materials, and he usually works as a design/development consultant. The Defendants point to the decision in Fong v. Chan ((1999) 1999 CanLII 2052 (ON CA), 46 O.R. (3d) 330) as support for the proposition that self-represented litigants are entitled to be compensated for the work ordinarily performed by lawyers.
[24] The Plaintiff opposes an award of any costs to the Defendants on the basis that the Defendants are self-represented, and that they do not meet the test for an award of costs. In this regard, the Plaintiff directs my attention to the decision in Mustang Investigations v. Ironside (2010 ONSC 3444 (Div.Ct.)). This decision sets out the test for awarding costs (at paragraph 25) as follows:
In my opinion, the language used by Sharpe J.A. is clear. First, to receive costs a lay litigant must demonstrate that he or she devoted time and effort to do the work ordinarily done by a lawyer and that as a result he or she incurred an opportunity cost by foregoing remunerative activity. Second, if an opportunity cost is proved a self-represented litigant should only receive a moderate or reasonable allowance for the loss of time devoted to preparing and presenting the case.
[25] It is clear that, in this case, Mr. Formosa was doing work ordinarily done by a lawyer. It is also clear that the amount claimed, $2,000.00, is based on a moderate or reasonable allowance for the loss of time. The amount claimed is entirely within rates normally paid to consultants.
[26] What is not as clear is whether Mr. Formosa incurred an opportunity cost by having to forego remunerative activity. Mr. Taylor asserts that there is no evidence that Mr. Formosa spent eight hours in preparing submissions, and that evidence is required to establish this fact. I disagree. Mr. Formosa is simply doing what has been done by the lawyers for the Plaintiff when they have sought costs. He is outlining the amount of time he spent. Further, the amount of eight hours is high, but not an unreasonable amount for a lay person to spend trying to understand and argue the intricacies of litigation privilege. I reject Mr. Taylor’s argument on this point.
[27] The second point advanced by Mr. Taylor is that Mr. Formosa cannot show that he lost a consulting opportunity, and is not actually out of pocket. In my view, this argument is also problematic, as it could be argued that Mr. Formosa would never be able to show a lost opportunity, as the Plaintiff could always argue that Mr. Formosa should have performed the legal work outside of regular business hours.
[28] In this case, there are three reasons for making an award of costs. First, there is the fact that considerable time had to be put into considering the privilege issues. Second, the Plaintiff’s position on this motion was not reasonable. It should have been clear from the discussion in Court that the documents were privileged. Third, the Defendants were aware they had to demonstrate some opportunity cost, but were not aware of the standard of proof that the Plaintiff would seek to hold them to, which is a standard that seems to me to be overly high.
[29] In the circumstances, the Plaintiff shall pay the Defendants costs in the sum of $500.00 inclusive of disbursements and HST. These costs are to be paid within seven (7) days of the release of these reasons.
Conclusion
[30] For the foregoing reasons, I order as follows:
a. Paragraphs 20 and 21 are to remain in the Statement of Defence.
b. The Plaintiff is to deliver its reply within twenty (20) days of today’s date.
c. The Plaintiff is to pay costs on account of the disclosure motion in the all-inclusive sum of $500.00 within twenty-one (21) days of the release of these reasons.
[31] Mr. Taylor is directed to prepare and circulate a draft order to the Defendants for review and comment within seven (7) days of the release of these reasons. The Defendants will have seven (7) days from receipt of the order to comment on it. If there are any issues with respect to the draft order, the parties may advise my judicial assistant.
[32] The Defendants are to provide their costs submissions on the issue of the striking of pleadings within seven (7) days of the release of these reasons. Those submissions are not to exceed two (2) single-spaced pages, exclusive of bills of costs, offers to settle and case-law.
[33] The Plaintiff is to provide its costs submissions within seven (7) days of the receipt of the Defendants’ costs submissions. Again, those submissions are not to exceed two (2) single-spaced pages, exclusive of bills of costs, offers to settle and case-law.
LeMay J.
Date: September 11th, 2017
CITATION: TSI Int. Group Inc. v. Formosa et al., 2017 ONSC 5398
COURT FILE NO.: CV-15-0694-00
DATE: 2017-09-11
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: TSI International Inc. v. John Formosa, Steffen Nielsen, iFarmLocal Inc., Richard Taylor, Great Life Group Inc. and John Masih, carrying on business as MSM Group
COUNSEL: Robert Taylor, Counsel for the Plaintiff Tim Gleason as agent for the Defendants on the pleadings issues. The Defendants on their own behalf on the costs issue.
ENDORSEMENT
LEMAY J
DATE: September 11, 2017