Court File and Parties

CITATION: Alofs v. Blake, Cassels & Graydon LLP 2017 ONSC 950

COURT FILE NO.: 06-CV-322357PD2

DATE: 20170208

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PAUL ALOFS, Plaintiff

AND:

BLAKE, CASSELS & GRAYDON LLP and RACHEL INGRAM, Defendants

BEFORE: Gilmore J.

COUNSEL: Eli S. Lederman and Ian MacLeod, for the Plaintiff Daniel A. Schwartz and Larissa Moscu, for the Defendants

HEARD: January 19, 2017

ENDORSEMENT

Overview

[1] The plaintiff brings a motion for leave pursuant to Rule 48.04(1). Leave is sought in order to bring a motion under Rule 21.01(1)(b) to strike a pleading in the Fresh as Amended Statement of Defence.

[2] The plaintiff’s position is that the impugned pleading is untenable in law and has formed the basis for further production and discovery that is irrelevant to the action.

[3] The defendants’ position is that the plaintiff has had countless opportunities to challenge the pleading but has chosen not to do so. Rather, the plaintiff has resisted production and examination on the pleading on the grounds of privilege which has prompted multiple motions, one of which is now under appeal. There are no grounds to permit the leave motion and even if allowed, it would fail on the basis that the defence is legally tenable.

Background Facts

[4] In 2006, the plaintiff, a director of Kremeko, along with other former Kremeko directors were sued by Kremeko shareholders (the “Fiorillo Action”) who had lost their investment in Kremeko’s third and final private placement before it went bankrupt. The Fiorillo Action plaintiffs sought damages from the defendants for oppression and against the plaintiff for deceit and fraudulent misrepresentation.

[5] Two months after the Fiorillo Action was commenced, the plaintiff commenced this action for contribution and indemnity from the defendants. Blake, Cassels and Graydon LLP (“Blakes”) were Kremeko’s external counsel. Rachel Ingram (“Ingram”) was a former Blakes partner who did work for Kremeko and left Blakes to become Kremeko’s General Counsel in 2003.

[6] In 2009, Justice Newbould granted judgment in oppression against the former directors of Kremeko and for deceit and fraudulent misrepresentation against the plaintiff. The plaintiff was ordered to pay $849,710.73 to the Fiorello Action plaintiffs. The judgment was paid in full by a directors and officers’ insurance policy managed by Encon Group (“Encon”).

[7] After payment of the judgment, the plaintiff amended his claim in this action to seek contribution and indemnity for the judgment. Leave was granted to amend the Statement of Claim in January 2012. The date by which the matter was to be set down for trial was extended from June 30, 2011, to March 6, 2013, to March 6, 2014, to November 30, 2014, to March 31, 2015, all on consent. The final extension was subject to the continuation of any motions. The matter was set down for trial on March 26, 2015. It was struck from the trial list on May 27, 2016.

[8] An Amended Statement of Defence was served on April 3, 2013. In the Amended Statement of Defence, the defendants pleaded that, as Justice Newbould made findings that the plaintiff committed fraudulent and dishonest acts and that the plaintiff and the other directors personally benefitted from their conduct, the claim was excluded from coverage under the policy. The defendants pleaded that the payments made by the insurer were ex gratia, incapable of subrogation and therefore the plaintiff had suffered no damages. No Reply to the Amended Statement of Defence was filed.

[9] In January 2015, and prior to the set down extension to March 31, 2015, the defendants served a refusals motion returnable in June 2015. The defendants sought production and examination on Encon’s files relating to the ex gratia and other defences. Significant litigation ensued with the plaintiff claiming privilege over the requested documents. After motions before Master Dash on June 22, 2015, and November 8, 2016, production of numerous documents from Encon and further examination for discovery of a representative from Encon was ordered based on the ex gratia pleading. The plaintiff has appealed the November 8, 2016, Order and the appeal is scheduled to be heard on March 20, 2017. Master Dash’s Endorsement from the November 8, 2016, motion contemplates the bringing of a Rule 21 motion and a stay of his Order.

The Issues

1. Is a Motion for Leave Required?

[10] The plaintiff argues that leave is not required for this motion because the matter has been struck from the trial list. The plaintiff relies on Concord Concrete and Drain (1986) Inc. v. B.C. Schickedanz Investments Limited[^1]. In that case, Master Peppiatt allowed parties to be added to an action without leave because the matter had been struck from the trial list. On appeal to the General Division (as it then was), the Court held that leave was not required and the Rule 48.01 did not apply to matters struck from the trial list.

[11] On a motion for leave to appeal to the Divisional Court[^2] in the same case, Boyko, J. held that because the matter had been struck from the trial list with a specific court order that it not be reinstated without leave from the Court, the matter could not be considered to be set down under Rule 48.04 and leave to appeal was not granted.

[12] The plaintiff argues that the matter involves policy considerations in that once a matter is struck from the trial list, judicial and court resources no longer come into play. Requiring leave in such circumstances would “needlessly impede the completion of the interlocutory steps necessary to become ready for trial.”[^3]

[13] The plaintiff also argues that leave is not required because the defendants never sought leave to bring their various motions for production and discovery after the action was struck from the trial list in May 2016. The defendants’ insistence on requiring leave for this motion is without foundation considering their own conduct, which includes refusing to schedule a mediation, and seeking production from and examination of a non-party (Encon) more than four years after delivering their Fresh as Amended Statement of Defence.

[14] Respectfully, I disagree with the plaintiff’s position on these preliminary issues. First, with respect to the issue of leave not being required where a matter has been struck from the list, I find the plaintiff’s reliance on the Concord case to be misplaced. The case is over 20 years old and very much turned on its own particular facts as referred to by Boyko, J. in paragraph 16 of her Reasons. I agree with the defendants that universal application of such a proposition would result in what the defendants’ counsel described as “tremendous mischief” with litigants waiting until a matter had been struck from the list before bringing pre-trial motions.

[15] Further, according to the protracted litigation history of this matter, the defendants were permitted to continue with motions initiated by them prior to March 21, 2015. This is clear from Master Hawkins’ Order of November 28, 2014. The defendants’ motion for production and examination on Encon’s files was served on January 26, 2015. That motion was bitterly contested and the issue of production, privilege and examination of Encon took two motions, an abandoned appeal and over two years to resolve. All of the litigation related to the same issue and I accept the defendants’ submission that leave was not required based on all of the motions being continuations of the original January 2015 motion.

[16] Based on all of the above, I therefore find that leave is required for the plaintiff’s motion.

2. Should Leave be Granted Pursuant to Rule 48.01(1) for a Rule 21 Motion?

[17] Rule 48.01(1) of the Rules of Civil Procedure states:

CONSEQUENCES OF SETTING DOWN OR CONSENT

48.04(1) Subject to subrule (3), any party who has set an action down for trial and any party who has consented to the action being placed on a trial list shall not initiate or continue any motion or form of discovery without leave of the court. O. Reg. 436/10, s. 1 (1).

[18] Rule 21 states as follows:

21.01(1) A party may move before a judge,

(a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence, and the judge may make an order or grant judgment accordingly R.R.O. 1990, Reg. 194, r.21.01(1).

(2) No evidence is admissible on a motion,

(a) under clause (1)(a), except with leave of a judge or on consent of the parties;

(b) under clause (1)(b), R.R.O. 1990, Reg. 194, r.21.01(2).

[19] The plaintiff seeks leave to bring a Rule 21 motion on the grounds that it is legally untenable for the defendants to plead that the judgment was paid by way of an ex gratia payment. They seek to strike that portion of the Fresh as Amended Statement of Defence and have the motion heard on March 20, 2017, the same date as the appeal of Master Dash’s November 2, 2016, Order. It is the plaintiff’s view that the Rule 21 motion and the appeal engage the same legal issues and it would therefore be efficient to have both matters heard on the same day.

[20] The plaintiff further submits that bringing a Rule 21 motion earlier would not have been efficient. It has only become necessary in order to respond to the significant production and discovery ordered by Master Dash in November 2016.

[21] The defendants’ view is that the motion for leave should be dismissed. Rule 21 motions must be brought promptly. This motion for leave is brought some 1400 days after the Amended Defence was filed and over 600 days after the matter was set down for trial. The real issue is the plaintiff’s resistance to the production and discovery of Enron’s documents. If the pleading was as untenable as the defendants submit, why did they not bring a Rule 21 motion after April 2013, when the Fresh as Amended Statement of Defence was delivered? Why was no mention of the impugned defence given as a reason for refusals or at discovery? Why not raise the objection in a Reply pleading? How could the plaintiff certify readiness for trial if he intended to bring a Rule 21 motion? According to the defendants, the plaintiff has not answered any of these questions satisfactorily and the motion should be dismissed as nothing more than a strategic move on the part of the plaintiff.

[22] There is currently some uncertainty as to the correct test for leave under Rule 48.04(1). Traditionally, the test required the moving party to demonstrate “a substantial or unexpected change in circumstances” such that refusal of leave would be manifestly unjust.[^4] The plaintiff argues that more recent cases suggest a broader test should be applied which would include a consideration that granting leave would be in the interests of justice. See BNL Entertainment v. Ricketts[^5] and Dhawan v. Arnold.[^6] The defendants do not agree and submit that the test has never changed and that as recently as three months ago in Denis v. Lalonde[^7] the Superior Court of Justice considered the case law and the two tests and rejected the broader approach in favour of the more traditional test.[^8]

[23] The plaintiff has the burden of providing evidence of significant and unexpected changes which may justify granting leave. It is this Court’s view that he has not done so and should not be granted leave even under the broadest of tests.

[24] Dealing first with the plaintiff’s arguments, I do not agree that the defendants have “stopped the action in its tracks” as alleged by the plaintiff. The plaintiff complains that the defendants have refused to schedule a mediation for over a year and a half. I accept the defendants’ position that it would not be feasible to schedule a mediation where document production related to a key component of their defence is not complete.

[25] Further, I do not agree that the defendants delayed in pursuing further interlocutory motions or brought new motions. The defendants served their original refusals motion in January 2015. The motion related to refusals given on discovery related to documents belonging to Encon. That motion was heard in June 2015. The plaintiff appealed the Master’s Decision but abandoned the appeal in September 2015.

[26] There was considerable disagreement after Master Dash’s June 2015, Order as the defendants took the position that the Further and Better Affidavit of Documents ordered by Master Dash had not been complied with. After several case conferences, a privilege motion was scheduled for November 2016. The result of that motion is being appealed by the plaintiff and the appeal is scheduled for March 20, 2017. All of the above relates to the defendants’ original refusals motion from January 2015.

[27] Dealing next with the issue of significant and unexpected changes, the facts of this case are similar to those in Schellenberg v. IBEW.[^9] In that case, the defendants brought a motion to strike the Statement of Claim as disclosing no cause of action. The matter had been set down for trial and discoveries completed. The motion was dismissed. The Court held that “the pleadings in this case were available for attack three and a half years ago and have not changed in the interim.”[^10] The delay was considered too long by the court and the motion was dismissed.

[28] In the case at bar, the Amended Statement of Defence was served on April 3, 2013. Similar to Schellenberg, the ex gratia defence has been available for attack for over three and a half years. As early as January 2015, the defendants made it known that they were seeking production and examination of Encon. The plaintiff did not bring a Rule 21 motion after service of the amended pleading, after discovery, nor did the plaintiff rely on any argument relating to the tenability of the defence as its basis for refusals.

[29] I find that there has been no significant or unexpected change that would justify granting leave in these circumstances. The landscape is exactly as it was in April 2013, except that the plaintiff has been unsuccessful in his attempts to counter the defendants’ requests for production and discovery in relation to the ex gratia defence.

[30] While it remains open to this Court to accept a broader test for leave which would include consideration of whether it is in the “interests of justice,” I find that even using this broader approach, the plaintiff’s motion fails.

[31] I do not accept that the within motion will streamline the trial or cause no delay. The Decision of Master Dash from November 2016, is under appeal and had nothing to do with the tenability of the ex gratia defence. According to the defendants, a representative from Encon will still be called as a witness at trial to address other defences which have not been challenged.

[32] Turning to the merits of the proposed motion, it is this Court’s view that the plaintiff would have had some difficulty convincing the motion’s court judge that the motion had been brought without delay. As per Schellenberg referred to above and a long line of cases following Fleet Street Financial Corporation v. Levinson[^11], the promptness requirement must be strictly adhered to.

[33] As well, there is also some uncertainty as to whether the plaintiff would meet the very high threshold of proving that there is not a “germ” or “scintilla” of a cause of action here.[^12] While the substantive part of the Rule 21 motion is not before me, the process of granting leave in such a case necessarily requires some consideration of the merits of the main motion. Despite the plaintiff’s views, I am not convinced that the ex gratia defence is bound to fail. Based on the cases referred to by both parties, it is clear that the law is far from settled in this area. In any event, if I am wrong with respect to the tenability of the defence, the trial judge will be in the best position to determine its merits.

Order and Costs

[34] Given all of the above, the plaintiff’s motion for leave is denied. If the parties cannot agree on costs, they may provide written costs submissions of no more than two pages in length (exclusive of any Bill of Costs or Offer to Settle) on a 7 day turnaround starting with the defendants. The first set of written submissions is due within 14 days of the release of this Decision and is to be sent to my assistant Ms. Therese Navrotski at therese.navrotski@ontario.ca.

Gilmore J.

Date: February 8, 2017

[^1]: 1995 CarswellOnt 2459 (OCGD). [^2]: [1996] O.J. No. 500 (OCGD). [^3]: Reply factum of the plaintiff, para 3. [^4]: Jetport Inc. v. Global Aerospace Underwriting Managers, 2013 ONSC 2740 [Jetport] at paras 40-44. [^5]: 2015 ONSC 1737 (S.C.J. Master). [^6]: 2016 ONSC 6304. [^7]: 2016 ONSSC 5960. [^8]: Ibid. [^9]: 2014 ONSC 735. [^10]: Ibid at para 22. [^11]: 2003 CarswellOnt 373 (OSCJ). [^12]: 1597203 Ontario Ltd. v. Ontario, 2007 21966 (ON SC), [2007] O.J. No. 2349 at para 12 (OSCJ).