Court File and Parties

COURT FILE NO.: CV-18-596320 DATE: 201904 26 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: AVIVA CANADA INC., Plaintiff/Responding Party AND: LYONS AUTO BODY LIMITED, JOHN C. LYONS, BRIAN MAJOCHA, FRED ZABALET and RALEIGH APPRAISAL SERVICE, Defendants/ Moving Parties

BEFORE: Kimmel J.

COUNSEL: Daniel I. Reisler, for the Plaintiff/Responding Party Richard H. Shekter, for the Defendants/Moving Parties

HEARD: April 16, 2019

Endorsement

[1] The Moving Parties (referred to herein as the “Moving Defendants”) are seeking by this motion to enforce what they say are the terms of a Rule 49 settlement agreement that was supposed to resolve their motion for particulars of various allegations in the plaintiff’s Amended Statement of Claim issued May 3, 2018 (the “statement of claim”). They also seek to set aside their noting in default.

[2] Although the issues raised in this action are not directly relevant to the issues on this motion, the fact that this is an action alleging fraud provides some context for why the Moving Defendants are concerned about particulars.

The Settlement Terms and Conditions

[3] The material settlement terms can be discerned from the written communications between counsel for the plaintiff and counsel for the Moving Defendants between February 22, 2019 and March 4, 2019 leading up to the last return date for the Moving Defendants’ particulars motion [1]. Since there is no single document that contains all of the terms and conditions of the final agreement in one place, I have summarized the communications in which they are found (as well as communications arising subsequent to the confirmation of the settlement) in some detail, as follows:

a. February 1, 2019 letter from counsel for the Moving Defendants offering four general categories of resolution, being:

i. Particulars to be provided of an April 2016 motor vehicle repair referred to in paragraph 9 of the statement of claim, or withdrawal of the allegations if not relevant;

ii. Particulars to be provided of the ownership of the Lexus and Chrysler cars at issue;

iii. Particulars to be provided of the means by which certain appraisals/invoices were provided;

iv. Confirmation that the plaintiff’s productions will be cross-referenced to certain paragraphs in the statement of claim for which particulars had been sought and that the referenced documents may be treated as particulars forming part of the statement of claim.

b. February 12, 2019 response from counsel for the plaintiff:

i. Agreeing to strike out paragraph 9 from the statement of claim;

ii. Confirming particulars of the ownership of the Lexus and Chrysler had been provided;

iii. Confirming agreement that the Moving Defendants will abandon their request for the “means” particulars if the other matters are complied with;

iv. Confirming that a formal response cross-referencing the plaintiff’s productions to certain requests for particulars would be provided and could be treated as the particulars;

v. In this letter, plaintiff’s counsel also introduced a condition for dealing with costs of the particulars motion, proposing they be in the cause.

c. February 13, 2019 email from counsel for the plaintiff identifying a further additional condition, requiring the delivery of the Moving Defendants’ statement of defence within 10 days of receipt of the remaining outstanding particulars.

d. February 22, 2019 letter from counsel for the Moving Defendants confirming the first four terms of the settlement described in the February 12, 2019 letter from plaintiff’s counsel (with certain requested clarifications that are not in dispute) and proposing a variation on the costs condition. With respect to the condition for the delivery of the statement of defence, confirming that the Moving Defendants “will comply with the Rules”.

e. February 27, 2019 letter from plaintiff’s counsel confirming the requested clarifications (that are not in dispute) and re-asserting the request for costs to be in the cause. No mention of the condition regarding the delivery of the statement of defence.

f. February 27-28, 2019 email exchange regarding the draft response to the particulars agreed to be provided (through the cross-referencing of documents) and proposing to defer the resolution of the issue of costs. No mention of the condition regarding the delivery of the statement of defence.

g. March 4, 2019 email from plaintiff’s counsel confirming a correction to one of the draft responses and proposing that both sides bear their own costs of the particulars motion. No mention of the condition regarding the delivery of the statement of defence.

h. March 4, 2019 follow up email from plaintiff’s counsel confirming agreement to the term that both sides bear their own costs, delivering a draft Amended Amended Statement of Claim and confirming that what was understood (by plaintiff’s counsel) regarding the time for delivery of the Moving Defendants’ Statement of Defence in compliance with the Rules was that it will be received by March 25, 2019 (20 days later).

i. As of March 4, 2019 the final terms and conditions of settlement of the motion for particulars (the “Settlement Terms and Conditions”) were as follows:

i. Plaintiff will deliver an Amended Amended Statement of Claim with paragraph 9 removed or struck out;

ii. The Moving Defendants will accept the particulars of the ownership of the Lexus and Chrysler already provided;

iii. The Moving Defendants will abandon their request for the “by what means” particulars pertaining to certain appraisals/invoices;

iv. Plaintiff will provide a formal response cross-referencing the plaintiff’s productions to certain requests for particulars;

v. Each side will bear their own costs of the particulars motion; and

vi. The Moving Defendants will deliver their statement of defence in compliance with the Rules.

j. On March 11, 2019, counsel for the Moving Defendants advised the court that the particulars motion was being withdrawn. Shortly after doing so, counsel for the Moving Defendants sent a letter to plaintiff’s counsel indicating their intention to move to strike certain paragraphs of the statement of claim for their failure to disclose a viable cause of action. Counsel for the Moving Defendants advised that, in light of this motion to strike some causes of action and portions of the statement of claim, the Moving Defendants could not deliver their statement of defence pending the outcome of the motion, and sought confirmation that no steps would be taken to note them in default pending the outcome of the motion.

k. In a March 12, 2019 email plaintiff’s counsel objected to this motion to strike and its implications, and indicated that it constituted grounds to end the settlement.

l. In a March 12, 2019 email counsel for the Moving Defendants re-affirmed the settlement and their position that it was separate from their intended motion to strike.

m. In a March 12, 2019 email plaintiff’s counsel indicated that they would not agree to postpone the delivery of the Moving Defendants’ statement of defence and demanded its delivery by March 25, 2019.

n. In a March 12, 2019 email counsel for the Moving Defendants indicated they intended to bring a motion to enforce the settlement.

o. In a March 26, 2019 email plaintiff’s counsel advised that the Moving Defendants would be noted in default if their statement of defence was not received by April 1, 2019.

[4] The Moving Defendants did not deliver their statement of defence and were subsequently noted in default by the plaintiff.

Test to be Applied on this Motion

[5] Counsel for both sides submitted that Rule 49.09 should be applied by analogy to the enforcement of the settlement of what was an interlocutory motion (utilizing Rule 1.04(2)). I think this is directly covered by Rule 49.02(2), which provides that Rules 49.03 to 49.14 apply to motions with necessary modifications.

[6] Both sides agree that, when determining whether a settlement agreement should be enforced under Rule 49.09, I must consider and apply the analysis set out by the Court of Appeal for Ontario in Olivieri v. Sherman, 2009 ONCA 772, 264 O.A.C. 297, at para 27:

a. To first determine whether an agreement to settle was in fact reached (applying the Rule 20 summary judgment test); and

b. If an agreement is found to exist, to determine whether, on all the evidence and having regard to the principle of finality, it should be enforced – or conversely, whether it should not be enforced if, for example, injustice would arise where the party seeking to enforce the settlement has repudiated it: see also Wilson v. Northwest Value Partners Inc., 2015 ONSC 4726, 26 C.C.E.L. (4th) 127, at para. 25, affirmed, 2016 ONCA 253, 31 C.C.E.L. (4th) 32.

Was an Agreement to Settle Reached?

[7] The main focus of both written and oral argument was on the first part of the analysis, whether an agreement to settle the particulars motion was in fact reached. The determination of this issue comes down to what was understood and agreed to by the plaintiff’s acceptance of the Moving Defendants’ offer, made in response to the plaintiff’s request for delivery of their statement of defence within ten days of receipt of the plaintiff’s Response to the Demand for Particulars, that: “[a]s to the delivery of the Statement of Defence, upon receipt of your Amended [Amended] Statement of Claim… we will comply with the Rules.” [Emphasis is mine]

[8] The parties now contend that this phrase “we will comply with the Rules” means two very different things:

a. Counsel for the plaintiff contends that it was understood, in the context of the back and forth between counsel, that this meant that the Moving Defendants would deliver their statement of defence 20 days after service of the Amended Amended Statement of Claim (as opposed to 10 days from delivery of particulars that had been suggested), which understanding was expressly communicated in an email dated March 4, 2019 in which plaintiff’s counsel said:

We have attached our draft Amended Amended Statement of Claim. With that, your demand for particulars has been satisfied. As per your letter dated February 22, 2019, you are now to comply with the Rules with regard to the delivery of your Statement of Defence. In accordance with the Rules, we expect to receive your pleadings by the end of business March 25, 2019.

This appears to accord with the time for delivery of a statement of defence under Rule 18.01(a).

b. Counsel for the Moving Defendants contends that it was intended, by the statement that they would “comply with the Rules” in respect of their delivery of a statement of defence, to reserve for the Moving Defendants the ability to bring a further motion to strike portions of the Amended Amended Statement of Claim on the basis that it fails to disclose:

i. Any cause of action as against the individual defendant John Lyons who is an officer, director and/or employee of the corporate Lyons defendant (on the grounds that, as a matter of law, there is no viable pleaded cause of action against him personally); and

ii. Any cause of action in trespass as against the corporate defendant Lyons Auto Body Limited (on the grounds that, as a matter of law, such a claim is not sustainable against a body corporate but only as against the individual(s) who committed the trespass).

This is said by counsel for the Moving Defendants to accord with Rule 2.02, which says that a motion to attack a document in a proceeding for an irregularity shall not be made, without leave of the court, if the moving party has taken any step in the proceeding [in this case, by delivery of a statement of defence] after obtaining knowledge of the irregularity [in this case, the failure of the Amended Amended Statement of Claim to disclose the above-noted causes of action] that would be the subject of an attack [in this case, by a motion to strike]. The Moving Defendants maintain that it is “in accordance with the Rules” to receive appropriate particulars in order to inform the consideration of whether to defend the action or bring a motion to strike for failure to disclose a cause of action: see Radulescu v. Toronto District School Board at para. 13; see also Dolvin Mechanical Contractors Ltd v. Trisura Guarantee Insurance Co., 2014 ONSC 918, 36 C.L.R. (4th) 126, at para. 23.

[9] While I do not agree that Rule 2.02 necessarily or in all cases forecloses (or would require leave to bring) the various categories of motions to strike a statement of claim (whether under Rule 25.11 or Rule 21) after the filing of a defence, counsel for the Moving Defendants pointed me to a line of cases that stand for the proposition that “the filing of a statement of defence signifies that the claim contains a recognizable cause of action to which the defendant can respond and should prevent a defendant from complaining subsequently about an irregularity in the statement of claim”. At least some of these cases appear to equate a motion to strike a pleading with a complaint or attack on an irregularity in it. See Gaska v. Timpano, 2019 ONSC 1491, at para. 18, citing Martin v. Astrazeneca Pharmaceuticals PLC, 2012 ONSC 2744, 27 C.P.C. (7th) 32, at para. 104 (which in turn summarized the same principle from other cases).

[10] Fortunately, I do not need to decide the full import and effect of Rule 2.02 on Rule 25.11 and Rule 21 motions to strike in order to decide this case. While I am satisfied that this line of cases, and the prospect of a motion to strike, may have been within the subjective contemplation of the Moving Defendants in their private strategy for responding to the statement of claim, for reasons outlined in more detail later, I do not find it to have been within the reasonable contemplation of the plaintiff, which is important for my determination of the issues to be decided on this motion.

[11] It is evident on the record before me, but I also take judicial notice, that the too often used response of counsel when dealing with procedural matters to say “we will comply with the Rules” is fraught with ambiguity. I do not agree with counsel for the Moving Defendants that this ambiguity should be resolved in their favour because plaintiff’s counsel did not seek to further clarify what was meant by it – to the contrary, plaintiff’s counsel did seek to clarify the meaning of this phrase by setting out what he understood the time for delivery of the statement of defence would be in his email of March 4, 2019. If anything, the ambiguity was created by the use of this phrase by counsel for the Moving Defendants and their lack of transparency about their intention to bring a motion to strike, even after being advised of what plaintiff’s counsel understood the phrase to mean.

[12] However, the fault for creating the ambiguity does not dictate the outcome of this motion, nor should it foreclose the Moving Defendants from bringing a motion to strike the statement of claim, if so advised. What is important for my decision is that the use of this phrase gave rise to an ambiguity in the Settlement Terms and Conditions.

[13] Although this was not briefed or argued in any meaningful way by either side, their respective positions and submissions require me to have regard to some basic and trite principles of the law of contracts in order to determine whether a settlement agreement was reached.

[14] The contract interpretation exercise involves factual investigations and determinations. Evidence of “surrounding circumstances” may be considered in order to deepen the decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57.

[15] Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact: see Sattva, at para. 58.

[16] An ambiguity arises where it is found that there are two possible and competing or inconsistent interpretations of a given word, phrase or clause in an agreement (the phrase “we will comply with the Rules” is what we are concerned with in this case). Where there is an ambiguity, the court is tasked with trying to determine the objective meaning of the phrase, having regard to the words of the agreement (the Settlement Terms and Conditions in this case) and the admissible evidence of surrounding circumstances. While the parol evidence rule may be relaxed in this context (see Sattva, at paras. 59-61), and may even allow for consideration of, among other things, negotiations leading up to the formation of the settlement, the introduction of evidence about the subjective undisclosed understandings and intentions of one party is generally not permissible (or helpful).

[17] The implications of an ambiguous term in an agreement are grounded in basic contract principles, which I have found to be conveniently summarized by John D. McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012), at pp. 528-529:

An agreement that contains a term that is either ambiguous or so vague and imprecise that each party can reasonably have a different understanding of the meaning of the term may be held to fail for lack of consensus ad idem. The leading illustration of the phenomenon is the fact situation in [Raffles v. Wichelhaus (1864), 2 H. & C, 906].

The conventional understanding of Raffles v. Wichelhaus is that it would not have been possible in that case for one party to establish that his understanding of which ship Peerless was intended by the agreement was the more reasonable one… on the other hand…[a] party whose understanding of the term can be established to be the reasonable or conventional understanding is able to rely upon the objective theory of contract formation. Thus, in [Lindsey v. Heron & Co. (1921), 50 O.L.R. 1], Middleton J. embraced the following proposition:

The apparent mutual assent of the parties essential to the formation of a contract must be gathered from the language employed by them, and the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. It judges of his intention by his outward expressions and excludes all questions in regard to his unexpressed intention. If his words or acts, judged by a reasonable standard manifesting attention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real or unexpressed state of his mind on the subject.

[18] Although this particular legal text and authorities were not cited, the above encapsulates the position of the plaintiff on this motion, namely that either:

a. The parties held objectively reasonable but different understandings of the meaning of the phrase “we will comply with the Rules” and there was no meeting of the minds, and therefore the settlement agreement fails for lack of consensus ad idem; or

b. Based on the outward communications and expressions of the parties, the more reasonable meaning of the phrase “we will comply with the Rules” is that which the plaintiff contends, requiring the Moving Defendants to deliver their statement of defence in accordance with the time prescribed for such under Rule 18.

Resolving the Ambiguity of “we will comply with the Rules” in this case

[19] As noted, two possible Rules were identified that could determine the timing for delivery of a statement of defence in this case, one that is precise (20 days after receipt of the Amended Amended Statement of Claim under Rule 18) and one that is entirely open-ended (after an undisclosed but intended motion to strike the Amended Amended Statement of Claim has been brought and argued, by virtue of the operation of Rule 2.2 and Rules 25.11 and 21). Both are objectively discernable to any party who has access to, and some familiarity with, the Rules. However, one of these Rules would only be considered with the benefit of knowledge of an intended motion to strike. In this case, only counsel for the Moving Defendants had that knowledge at the time of the formation of the settlement agreement because it was not communicated to counsel for the plaintiff. I also note that technically, even in a situation where the delivery of a statement of defence is deferred pending a motion to strike the statement of claim, an agreement or court order to extend the time that would otherwise apply under the Rules for delivery of the statement of defence can be (and is often) sought. In other words, the extension in the time for delivery of the statement of defence pending a motion to strike is not prescribed by the Rules.

[20] Having regard to the above principles and the words of the settlement agreement and shared communications leading up to it, I find that the objectively reasonable interpretation of the Settlement Term and Condition that calls for delivery of the Moving Defendants’ statement of defence in compliance with the Rules is that it would be delivered within 20 days of receipt of the Amended Amended Statement of Claim, as provided for under Rule 18. It would not be objectively reasonable to expect a party who is unaware of any suggestion or consideration of a motion to strike to have adverted or agreed to the open-ended time frame for delivery of a defence that could arise as a result of the application of a line of cases under Rule 2.2 in the event of a theoretical motion to strike the statement of claim.

There is no Settlement to Enforce

[21] In the circumstances of this case, there is no settlement agreement to enforce. My primary finding is that there was a settlement agreement reached on the Settlement Terms and Conditions as outlined and with the meaning indicated above. However, on March 12, 2019, the plaintiff accepted the Moving Defendants’ repudiation of the settlement upon being advised on March 11, 2019 that the Moving Defendants would not deliver their statement of defence within 20 days of receipt of the Amended Amended Statement of Claim and would not do so until after their motion to strike. That brought the settlement agreement to an end. This is consistent with the position taken by the plaintiff at the time (that there was a settlement agreement but that it had been breached by the Moving Defendants). In oral argument, plaintiff’s counsel suggested that it remained open to me to enforce the agreement based on the terms that the plaintiff contended, but in my view that avenue was closed once the plaintiff accepted the repudiation.

[22] Alternatively, if I had found the ambiguity of the phrase “we will comply with the Rules” to be unresolvable because each side could reasonably have held their different understandings of when the Rules would require the Moving Defendants to deliver their Statement of Defence, it would not change the outcome of this case. In that event, I would find that there was no meeting of the minds on this important condition and that no settlement was reached. This was an alternative theory that the plaintiff argued on the motion. While counsel for the Moving Defendants suggested that the plaintiff was taking inconsistent positions about whether there was or was not a settlement, I do not consider these positions to be incompatible; either the plaintiff thought there was a settlement agreement on the Settlement Terms and Conditions as understood by plaintiff’s counsel (and accepted its repudiation by the Moving Defendants), or if this interpretation of the condition was not what was mutually understood and agreed to, then there was no meeting of the minds and no settlement agreement.

[23] In either of these events, there is no settlement agreement for me to enforce now under Rule 49.09 and the second part of the Olivieri v. Sherman test is not engaged. I do not need to determine whether the settlement agreement, if reached, should be enforced.

[24] The Moving Defendants’ motion to enforce the settlement of the particulars motion is therefore dismissed. It is unfortunate that this leaves the parties back where they were approximately six months ago, with an unresolved motion for particulars, with the now disclosed possibility of a motion to strike the statement of claim after the particulars are resolved and before any defence is delivered.

Terms of Dismissal

[25] While I am dismissing this motion, I am doing so on the following terms, pursuant to Rule 37.13(1) and having regard to Rule 1.04:

a. Plaintiff to deliver any particulars it is willing to provide by May 8, 2019;

b. The Moving Defendants may renew their motion for particulars (and seek an extension in the time for delivery of their statement of defence), if so advised, on the condition that they serve the motion by no later than May 24, 2019 and make it returnable on the first available date before a master, taking into account the schedule of the court and counsel’s availability;

c. If any particulars are ordered, and after they have been provided (following any appeals or the expiry of applicable appeal periods), the Moving Defendants may bring their motion to strike the statement of claim (and seek an extension in the time for delivery of their statement of defence), if so advised, on the condition that they serve the motion by no later than 28 days after receipt of any particulars (or a ruling or settlement that does not require the provision of any particulars) and make it returnable on the first available date before a judge, taking into account the schedule of the court and counsel’s availability; if no motion for particulars is brought then the deadline for the motion to strike shall be within 28 days of the deadline for bringing the particulars motion provided for in sub-paragraph (b) above;

d. Absent agreement of the parties, the time for delivery of the Moving Defendants’ statement of defence shall be left to be determined by the judge hearing the motion to strike, if any; if no motion to strike is brought then the Moving Defendants’ statement of defence shall be delivered within 30 days of the deadline for bringing such motion provided for in sub-paragraph (c) above.

Setting Aside the Noting in Default

[26] After learning of the Moving Defendants’ position that they would not be delivering their statement of defence, the plaintiff gave them warning and then noted them in default. The Moving Defendants also seek to have that noting in default set aside. The noting in default is acknowledged to have been a tactical move by the plaintiff in response to what the plaintiff considered to be a repudiation by the Moving Defendants of the Settlement Terms and Conditions requiring the delivery of their statement of defence within 20 days of March 4, 2019 (in compliance with Rule 18).

[27] The Moving Defendants rely upon the traditional factors considered when the court is asked to exercise its discretion to set aside a noting in default, having regard to the context and factual situation of the case. See Intact Insurance Company v. Kisel, (2015) ONCA 205, 125 O.R. (3d) 365, at paras. 12 and 13.

[28] The typical criteria applied under Rule 19.03 for setting aside a noting in default have been readily established in this case: a) the Moving Defendants have consistently demonstrated by their conduct an intent to defend; b) they moved promptly to set it aside (even in advance of it occurring); and c) they have explained why they have not provided their defence to date. It is clear that the noting in default of the Moving Defendants should be set aside and I so order in the exercise of my discretion.

[29] The plaintiff seeks as a term of any order to set aside the noting in default that a deadline for the delivery of their statement of defence be imposed. This is effectively embedded in the terms that I have imposed as noted above, which also take into account the concerns about the implications of Rule 2.02 expressed by the Moving Defendants.

Costs of this Motion

[30] Both parties are seeking costs of this motion. The Moving Defendants seek substantial indemnity costs of $28,960.99 (arguing that this scale of costs is appropriate given the tactical noting in default) or alternatively, partial indemnity costs of $17,005.31. These costs reflect approximately 60 hours of lawyer time spent on this motion. The plaintiff is seeking a much more modest amount of $3,059.66 in partial indemnity costs based on approximately 20 lawyer hours of time spent and lower hourly rates under the tariff.

[31] There was divided success on the two “issues” on the motion. The enforcement of the settlement (which was by far the more time-intensive aspect of the motion) was resolved in favour of the plaintiff and the setting aside of the noting in default of the Moving Defendants was resolved in their favour. Both sides engaged in tactics that could be said to be the “cause” of the necessity for court intervention. The Moving Defendants did not disclose their intention to bring a motion to strike and sought to rely on the implications of that, in combination with their choice of the ambiguous phrase “we will comply with the Rules”, as a basis for enforcing the settlement agreement. The plaintiff retaliated by noting them in default and offering to set it aside only upon agreement for the delivery of a statement of defence. Neither side provided a costs outline that would allow me to meaningfully separate out the costs properly attributable to these two issues on the motion. Given the divided success and the tactics employed by both sides, I am not inclined to award either side any costs.

[32] Accordingly, and in the exercise of my discretion under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57.01, I am ordering that each side bear their own costs of this motion and there will be no costs payable by either side to the other. The costs of any further motions for particulars or to strike the statement of claim that I have allowed for will be in the discretion of the court hearing those motions.

Kimmel J.

Date: April 26, 2019

Footnote

[1] It was noted during argument by counsel for the plaintiff that counsel for both sides find themselves in the uncomfortable position of having to make submissions about communications and negotiations that they were involved in, even though neither of the senior counsel arguing the motion swore the supporting affidavits. While acknowledging that it might have been preferable for them to have others argue this motion for them, it was noted that would have further increased the costs of these preliminary procedural matters, which have already consumed significant time and expense. Given that they are both in the same position, and having regard to, among other things, the principle of proportionality in Rule 1.04(1.1), I was comfortable allowing them to proceed as they requested I do.