COURT FILE NO.: 12-53886 & 53886A1
DATE: 2018/07/09
COURT OF ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Carmen Scaffidi-Argentina, et. al., Plaintiffs
AND:
Tega Homes Developments Inc., et.al, Defendants
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Stephanie Drisdelle, for the defendant Tega and third party Dufresne
Elizabeth Ackman, for the defendants Goodeve Manhire
J. Stephen Cavanagh, for the defendant Paterson Group
HEARD: March 22, 2018
REASONS FOR DECISION
[1] This is a motion to strike amended defences to crossclaims delivered in February by the co-defendants, Goodeve Manhire and the Paterson Group (“defendants by crossclaim”). This raises an interesting practice point on a somewhat arcane issue. What is the status of the deemed defence to a crossclaim under Rule 28.05 (2) if the defendant by crossclaim subsequently wishes to deliver a detailed defence?
[2] All that hinges on the answer to that question is who bears the onus on the motion. In this case, because the defendants had not delivered defences to crossclaim and the pleadings had not been noted closed, the Registrar accepted the defences. Had the Registrar rejected the pleading and treated it as an amended pleading, the defendants by crossclaim would have had to bring a motion for leave to amend. Instead it is Tega (“plaintiff by crossclaim”) which brings a motion to strike.
[3] Ultimately the question is the same. Is it unfair and prejudicial to allow a pleading amendment at this stage in the litigation? Thought I am of the view that Rule 26.1 should govern (meaning the parties seeking the amendment require leave and have the onus to justify it) I have not had to decide the question based on onus. In my view on the facts of this case, there is no prejudice that cannot be addressed in costs. To the contrary, given the changed landscape of the litigation, it is entirely appropriate to permit amendments for what is now essentially an insurance dispute.
[4] All of this requires some explanation.
Background
[5] At one level, the facts of this case are shockingly simple. Tega needed to dig a large hole in the ground in order to construct a new building. It hired a soil consultant (Paterson), a shoring design consultant (Goodeve Manhire) and a contractor (Dufresne). Dufresne dug the hole and installed temporary shoring. Something went wrong and there was damage to surrounding properties. The plaintiff in the main action was the owner of a rental property on adjoining lands. That building was damaged so badly that it was condemned by the City and the tenants had to leave. A more detailed and precise description may be found in previous decisions of the court.[^1]
[6] The plaintiff sued. It sued Tega and also sued Paterson and Goodeve Manhire. They in turn third partied Dufresne and all defendants crossclaimed against each other. It is the latter that now concerns the court.
[7] By agreement between the parties and by order of Justice Roger, the action was bifurcated. Bifurcation often means determining liability in advance of damages but in this case it was the reverse. A trial was ordered only to establish the quantum of the plaintiff’s damages. Optimistically, it was hoped that if damages were quantified, resolution of all remaining issues would be simplified.
[8] As a consequence there was a damages trial conducted by Justice Sheard. That trial took place over a number of days in January of 2016. It resulted in a decision quantifying the damages at approximately $1.1 million although the amount was subsequently adjusted for reasons that need not concern the court on this motion. The important point is the damages were fixed at an amount considerably less than originally claimed.
[9] The original plan would then have seen a liability trial in which the question of whether and on what basis and in what percentage the defendants were liable to the plaintiff would be adjudicated. That would have been followed in the ordinary course by a trial of the crossclaims and the third party claim in which the obligation of any of the defendants and the third party to indemnify or compensate each other would also have been determined.
[10] As often happens, best laid plans are derailed by complications.[^2] It is at this point that the apparent simplicity of this matter comes to an end.
[11] On the eve of the damages trial, Paterson and Goodeve Manhire both reached agreement with the plaintiff which resulted in dismissal of the plaintiff’s claim against those defendants. This was accomplished by the plaintiff accepting outstanding offers to let these defendants out of the main action without costs.
[12] This left only Tega as a defendant in the liability trial and the questions of contribution and indemnity amongst the defendants on the crossclaims and third party claim. This is not as straightforward as it appears.
[13] The precise mechanism by which the plaintiff’s building was destroyed has not been established. While it is apparent the soil supporting the structure subsided and it appears heavy rainfall was a factor, the shoring itself did not give way. There are competing expert opinions. This will be one focus of the liability trial but determination of liability is not only a question of who is at fault, it also depends on legal rights and obligations.
[14] There was damage to other property and there were other claims that did not form part of the damages trial. Some of those claims are in whole or part subrogated. In any event, there are a several insurers involved. This brings into play a complex web of intersecting contractual obligations as well as various aspects of insurance law.
[15] There is a policy of wrap-up liability insurance for this project. That is a policy to protect all members of a construction team from third party and general liability exposure and under that policy all of the defendants are insured. There are exclusions for professional negligence claims. There was a coverage motion. Justice Roger ruled that the wrap up insurer did not have a duty to defend these defendants. This does not eliminate the possibility that the facts as found at the liability trial would entitle them to indemnity under the policy. In the meantime each of these defendants are each represented by separate counsel. Meanwhile, Tega and Dufresne are represented by common counsel.
[16] There has also been a number of developments resulting in changes to the litigation landscape. The trial will now be only a trial amongst the defendants and third party. This gives rise to the pleading amendments.
[17] As I mentioned, there were other parallel claims that were not part of the damages trial. That trial was only a trial of the plaintiff’s claim in this action. The other neighbour whose building was damaged had commenced his own action (which I am now case managing). Two of the tenants in the Scaffidi-Argentina building also advanced claims against Tega. The damages sustained by those tenants did not form part of the plaintiff’s damages assessed by Justice Sheard.
[18] Subsequent to the trial, agreement was reached between the other plaintiffs, Tega and these defendants. The damages of each plaintiff were quantified and it was agreed that those damages would be paid once the liability split was resolved. As a consequence, second tranche of the trial in this action is to determine the liability of the defendants to all of the parties claiming against Tega and not just liability to the original plaintiff. This is a substantially larger claim.
[19] A second important event is that Tega reached agreement with Scaffidi-Argentina. Tega paid the damages and the main action came to an end. This means that the liability trial will – at least in theory – only be concerned with the allocation of damages amongst the defendants and the third party. All of this makes perfect sense at a theoretical level. All damages have been quantified. The number of parties have been reduced. The liability trial should only be focused on what fault (if any) should be assumed by Paterson, Goodeve Manhire or Dufresne.
[20] The complication is that in the absence of a trial between the plaintiff and Tega, there has been no judicial determination of the basis for Tega’s liability to the plaintiff. Ordinarily, that would not matter because there was never any real doubt that Tega would have to compensate the innocent plaintiffs for damage caused by the excavation. As the landowner and developer, Tega would have been liable either in negligence or in nuisance or both. Nuisance of course is a strict liability tort whereas negligence requires fault. When the cracks had first appeared in the plaintiff’s house, but before the damage became catastrophic, Tega had issued a “comfort letter” to Scaffidi-Argentina undertaking to rectify any damage.
[21] Although it makes sense to streamline the litigation by reducing the number of issues and the number of parties, there is a wrinkle. Tega was able to release the plaintiff from the action unilaterally because the plaintiff had already released each of the other defendants but because Tega’s actions in paying the damages and releasing the plaintiff was unilateral and because the basis for Tega’s liability to the plaintiff may make a difference with regard to insurance coverage and exclusions, the other defendants now wish to advance a series of technical defences in addition to their argument that neither Paterson nor Goodeve Manhire were negligent.
[22] It is certainly possible that there was no negligence on the part of the soils consultant or the designer of the shoring system. It is even possible that neither Dufresne nor Tega were negligent. Sometimes things go wrong that were not foreseeable. Tega’s liability for nuisance would not be dependent on the plaintiff proving negligence on the part of any party. In addition, these defendants suggest that the “comfort letter” was an independent contractual basis for liability independent of any liability in tort whatsoever. Why this matters is because apportionment of fault under the Negligence Act applies only if the parties are joint tortfeasors within the (admittedly broad) scope of the Act.
[23] It is theoretically possible for Tega to be blameless in this situation yet still have incurred an obligation to compensate the plaintiff. If one or more of the consultants or sub-contractors made an error that caused the damage and required Tega to incur these additional costs, the consultant or sub-contractor could be liable to Tega for breach of contract or for negligence or for both.
[24] This is not what is pleaded. The only cross-claim asserted by Tega is a claim for contribution and indemnity under the Negligence Act. In discussions at two case conferences prior to the amendment of the defences to crossclaim, Mr. Bertschi made it clear that he believed this pleading was broad enough to encompass the claim Tega was advancing and these defendants made it clear that they would argue the narrow scope of the Act. Tega indicated that it had no intention of amending its crossclaims on three separate occasions. The defendants wish to amend their defences to crossclaim to respond to the risk that the court will agree with the broader interpretation and to raise technical defences which may be open to them due to the changes in the litigation landscape described above.
Pleadings and Crossclaims
[25] It is necessary to briefly describe the rules of pleading and the specific provisions for deemed defences to crossclaims. Rules of Civil Procedure typically contain provisions by which parties to litigation can assert claims against each other or may join parties into the litigation commenced by a plaintiff. In Ontario, the rules differentiate between Counterclaims (Rule 27), Crossclaims (Rule 28) and Third Party Claims (Rule 29).
[26] Crossclaims and Third Party claims are conceptually similar but the rules are different. Rule 29 permits a third party claim against anyone who is not a party to the existing action and who may be liable to the defendant on any basis that is in any way related to the issues in in the main action. This includes claims for contribution and indemnity but also includes independent claims related to the facts involved in the main action or any situation in which the third party should be bound by the determination of an issue in the main action. This is extremely broad and encompasses third party claims that are fundamentally intertwined with the main action but also claims that require determination of a completely different set of facts though linked to the main action in some fashion.
[27] Strictly speaking a third party action is treated as a separate action. It must be issued in the same manner as a statement of claim. It is given a separate file number (the main action number with a letter suffix) and it must be separately set down for trial. It is presumptively to be tried at or immediately after the trial of the main action but the court may order a separate trial. It is intrinsically linked to the main action, however, because the third party will be bound by the findings made in the main action. Importantly, the third party has the right to defend the main action and to raise any defence that would be open to the original defendant.
[28] Rule 28 is almost identical in effect but procedurally distinct. The rule permits crossclaims between defendants to an action in any of the same circumstances as a third party claim. In that sense the only difference between a third party claim and a crossclaim is whether the claim is against a stranger to the action or a person already a party. A party claiming contribution and indemnity under the Negligence Act against a co-defendant must do so by way of crossclaim.
[29] Of course the defendant by crossclaim is already a co-defendant in the main action and already has the right to defend the main action in its own right but the claims against each defendant may be different and distinct. Rule 28.06 therefore provides the defendant to the crossclaim with an additional right to plead defences to the main action that would open to the defendant who has made the crossclaim. Unlike a third party claim, the crossclaim is not issued, is not treated as a separate action and must be included in the statement of defence either in the original defence or by way of amendment.
[30] The deemed defence arises under the narrow circumstances described in Rule 28.05. Pursuant to subrule 28.05 (2) a deemed defence is available if the only crossclaim is a claim for contribution and indemnity under the Negligence Act and the defendant to the crossclaim has delivered a defence to the main action. In that case, the rule provides for a deemed defence to the crossclaim and it is not necessary to deliver an actual pleading.
[31] There is a specific condition attached to the deemed defence. The defendant to the crossclaim must be relying only on the facts pleaded in its statement of defence and “not on a different version of the facts or on any matter that might, if not specifically pleaded, take the crossclaiming defendant by surprise”.
[32] It would seem that if the crossclaiming defendant advances a cross claim on any basis other than contribution and indemnity under the Negligence Act, a defence to crossclaim must be filed. Rule 28.07 indicates that a defendant to crossclaim can be noted in default on the crossclaim and provides a consequence of such noting in default. On the other hand if the crossclaiming defendant is relying only on the Negligence Act, no defence need be delivered and the defendant to the crossclaim may rely on the deemed defence. The rule does not contain any requirement to deliver notice of such reliance and it is therefore unclear how the Registrar would know whether or not pleadings are closed. In fact it is for this reason the defendants were able to file defences to the crossclaims without seeking leave to amend.
Status of the Deemed Crossclaim
[33] As discussed above, the deemed defence applies in two circumstances. Firstly the claim for contribution and indemnity must be a narrow one. Secondly, the defendant to the crossclaim may not rely on any defence to crossclaim that might take the crossclaiming defendant by surprise.
[34] In my view, it follows that a defendant to crossclaim wishing to subsequently deliver a pleading which does rely on facts not pleaded in the defence to the main action or which might, if not pleaded, “take the crossclaiming defendant by surprise” is in the same position as a party wishing to amend its pleading. That is it will require leave and the governing rule is Rule 26.01.
[35] Although the motion was in form a motion to strike the pleading, I have treated it as a motion for leave to amend. In fact on a close reading of the rule, they should not have been able to file these defences. The rule requires that defences to crossclaims be included in the statement of defence and so the proper procedure would have been to seek leave either to amend the defence or for an exemption from the rule. In any event, the defendants to the crossclaim should have the onus of justifying the amendments. It is of course not a high onus because of the mandatory language of Rule 26.01.
Analysis and Decision
[36] In its new 13 page Defence to the Crossclaim, Goodeve Manhire includes the following defences:
a. Goodeve Manhire alleges that by virtue of failures to comply with the Corporations Information Act, Tega lacks the capacity to sue.
b. By delivering the comfort letter, Tega made itself solely responsible for the damages to the plaintiff.
c. It pleads additional facts in terms of the events leading up to the construction contracts and the fact that it was not in a supervisory role to Dufresne.
d. It pleads significant amounts of new facts relating to the risk, the mechanism of damage, foreseeability and absence of negligence.
e. It pleads that Tega’s liability to the plaintiff lay in either nuisance or voluntary assumption of liability and was strict liability not triggered by any negligence on the part of the party pleading.
f. It pleads issues of insurance law, the wrap up policy, a subrogation bar or estoppel.
[37] Paterson’s proposed defence is similar.
a. Paterson pleads that Tega’s liability to, and subsequent settlement with, the Plaintiffs is its obligation under the comfort letter. As a result, it is pleaded that Tega’s liability does not give rise to a crossclaim, pursuant to s. 2 of the Negligence Act.
b. Paterson also relies on an alleged incapacity of Tega to maintain an action because of default under its statutory requirements.
c. Paterson asserts that Tega’s pleadings do not allege that Paterson was negligent in producing its soil reports or recommendations.
d. Paterson also relies on its status under the wrap-up policy and the fact that Tega has been made whole by its insurer. Paterson alleges that a waiver of subrogation and subrogation bar means that Tega has suffered no loss and its insurer has no right of subrogation.
e. Since Tega has denied liability in tort in its defence and has never been found to be a tortfeasor, Paterson argues that Tega cannot pursue a contribution claim under s. 2 of the Negligence Act.[^3]
[38] This is now essentially a dispute amongst insurers. The scope of the action has been expanded by inclusion of additional claims that were not part of the initial action. Tega argues for an extensive interpretation of the Negligence Act. The litigation landscape has dramatically changed since the original pleadings were filed.
[39] Under these circumstances, it is entirely reasonable to amend the defences to the crossclaims. New circumstances give rise to the possibility of additional defences and more facts are known than were apparent at the time of the original pleadings. Whereas the focus originally was in jointly defeating the plaintiff’s inflated claim for damages, the focus of the litigation is now entirely on claims for indemnity and contribution.
[40] The pleadings are reasonably compliant with Rule 25 and there is no real prejudice to Tega. To the contrary, these defendants would be prejudiced if they were unable to plead additional facts that have arisen since the defences were delivered and new statutory defences that may apply as a result of the events described above.
[41] Under the circumstances, there is no harm in having the defences set out in a separate pleading rather than adding them to the statement of defence. It follows that Tega will have the right to deliver a separate Reply to the Defence to Crossclaim should it wish to do so.
Conclusion
[42] In conclusion, the motion to strike the pleadings is dismissed. While I have ruled that the defendants to crossclaim should have obtained leave to amend their pleadings, that leave is hereby granted nunc pro tunc. Similarly leave is granted for the filing of separate defences to the crossclaims rather than adding them to the statement of defence.
[43] Tega has leave to deliver a Reply to the Defence to Crossclaim if it feels it appropriate and wishes to do so.
[44] I understand the pleading amendments will give rise to requests for additional discovery and production. I encourage counsel to agree on a timetable for these and other steps required to prepare the matter for the liability trial.
[45] In any event, the matter will continue to be case managed. I believe there is already a joint case conference scheduled in this action along with the parallel proceeding but in any event a case conference will be scheduled by the case management co-ordinator.
Costs
[46] If the parties are unable to agree on the costs of this motion, the matter may be addressed at the case conference.
Mr. Justice Calum MacLeod
Date: July 9, 2018
COURT FILE NO.: 12-53886 & 53886A1
DATE: 2018/07/09
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Carmen Scaffidi-Argentina, et. al., Plaintiffs
AND:
Tega Homes Developments Inc., et.al, Defendants
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Stephanie Drisdelle, for the defendant Tega and third party Dufresne
Elizabeth Ackman, for the defendants Goodeve Manhire
J. Stephen Cavanagh, for the defendant Paterson Group
HEARD: March 22, 2018
Reasons for decision
Mr. Justice Calum MacLeod
Released: July 9, 2018
[^1]: See: 2016 ONSC 5448 & 2017 ONSC 3427
[^2]: Burns, Robert, To a Mouse, 1785, verse 7
[^3]: Note: The original text did not contain a footnote 3 marker in the body, but the context suggests it belongs here.