Court File and Parties
COURT FILE NO.: CV-17-571413 MOTION HEARD: 2019-04-10 REASONS RELEASED: 2019-05-03 SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
PROLLENIUM INTERNATIONAL CORPORATION and PROLLENIUM MEDICAL TECHNOLOGIES INC. Plaintiffs
- and-
VITAL ESTHETIQUE SARL aka SARL VITAL ESTHETIQUE aka VITAL ESTHETIQUE Defendant
BEFORE: MASTER M.P. McGRAW
COUNSEL: E. Brosseau, for the Plaintiffs M. Teitel, for the Defendant
REASONS RELEASED: May 3, 2019
Reasons For Endorsement
I. Background
Introduction
[1] This is a motion by the Plaintiffs Prollenium International Corporation (“PIC”) and Prollenium Medical Technologies Inc. (“PMT”, together with PIC, the “Plaintiffs”) for leave to amend their Statement of Claim issued March 13, 2017, as amended on March 21, 2017 (the “Original Claim”).
[2] This motion arises in an action for the collection of 2 outstanding invoices. The proposed amendments relate to the effectiveness of an additional agreement between the parties not initially pleaded. This motion also proceeds in the context of the Defendant’s adjourned jurisdiction motion.
The Parties, the Agreements, the Invoices and the Original Claim
[3] PMT is an Ontario corporation which manufactures products for PIC. PIC is a wholly-owned subsidiary of PMT located in Barbados which researches, develops, manufactures and sells medical devices, including dermal fillers. The Defendant Vital Esthetique SARL (“VES”) is a corporation with its head office located in Paris, France which designs, produces and distributes medical, health and beauty products.
[4] VES began ordering products, primarily dermal fillers, from PMT in or about late 2012. VES packaged the dermal fillers under its own brand labels and trademarks. Between January 28, 2013 and mid-April 2013, PMT and VES negotiated an “own brand labeler” (“OBL”) and “original equipment manufacturing” (“OEM”) agreement which permits an OBL like VES to purchase finished product from an OEM like PMI to which the OBL affixes its own name or trademark (an “OBL/OEM Agreement”). On April 11, 2013, VES and PMIC signed an OBL/OEM Agreement (the “2013 Agreement”).
[5] The 2013 Agreement contains the following provision:
“7.6 Quality Agreement: Prollenium and Company shall complete, execute and deliver a technical agreement (the “Quality Agreement”) in respect of those Products identified in Schedule B within thirty (30) days of the execution of this Agreement or as soon thereafter as is possible. NO PRODUCT SHALL BE DELIVERED UNTIL A QUALITY AGREEMENT HAS BEEN SIGNED. In the event of Products added to this Agreement after the Effective Date, the Parties shall add a schedule to the Technical Agreement specific to such product. The Parties acknowledge and agree that (i) in the event of a conflict between the provisions of the Quality Agreement and a Schedule to the Quality Agreement specific to a Product, the provisions of such Schedule shall apply, and (ii) in the event of a conflict between the provisions of this Agreement and the provisions of the Quality Agreement applicable to a Product, the provisions of this Agreement shall prevail unless the Parties otherwise expressly provide in writing for the contrary or unless the conflicting issue relates to a cGMP matter, in which event the provisions of the Quality Agreement shall prevail.”
[6] PMT and VES did not sign a Quality Agreement with respect to the 2013 Agreement. However, VES ordered products from PMT in 2013 and 2014 which PMT shipped to VES. On cross-examination, Amer Mrad, VES’ General Manager, testified that he believed that he was placing these orders under the 2013 Agreement. Further, the parties amended the 2013 Agreement and its schedules in 2014 and Mr. Mrad signed an appendix to the 2013 Agreement.
[7] The 2013 Agreement also contains the following provision:
“11.10 Governing Law and Jurisdiction: This Agreement shall be governed by the laws of the Province of Ontario and the laws of Canada applicable therein, without regard to conflicts of laws. The Parties hereby consent to the jurisdiction of the courts of Toronto, Canada in connection with any action commenced pursuant to this Agreement.”
[8] In late 2014, PMT transitioned its ongoing international export contracts to PIC. As result, PMT’s international customers, including VES, signed new agreements with PIC. VES executed an OBL/OEM Agreement with PIC on February 20, 2015 with an effective date of January 1, 2015 (the “2015 Agreement”). The 2013 Agreement and the 2015 Agreement are substantially similar, almost identical, and both contain the Quality Agreement and jurisdiction provisions set out above.
[9] On December 5, 2014, while negotiating the 2015 Agreement, VES ordered 10,700 Surface Style Kits and 14,500 Surface Ultra Kits (the “Order”), its final order of dermal fillers from the Plaintiffs which is the subject of this action. On February 11, 2015, the Plaintiffs shipped part of the Order and rendered an invoice in the amount of U.S. $81,535 (the “February Invoice”). On April 14, 2015, the Plaintiffs shipped the balance of the Order and rendered an invoice in the amount of U.S. $427,500 (the “April Invoice”, together with the February Invoice, the “Invoices”).
[10] The parties discussed payment of the Invoices until January 2016 with no resolution. On December 12, 2015, the Plaintiffs advised VES that they were cancelling the 2015 Agreement for non-payment of the Invoices. As set out in the Original Claim, the Plaintiffs allege that U.S. $484,010 remains owing on the Invoices.
[11] The Plaintiffs issued the Original Claim on March 13, 2017 and amended it on March 21, 2017 to plead that on March 13, 2017, PIC notified VES that it had assigned all of its rights under the 2015 Agreement to PMI. In the Original Claim, the Plaintiffs plead that the Invoices arise and are due and owing under the 2015 Agreement. VES has not filed a Statement of Defence.
The VES Action, the Jurisdiction Motion and the Amended Claim
[12] By Notice of Action issued November 10, 2017 and Statement of Claim issued December 8, 2017, VES commenced an action claiming damages from the Plaintiffs for, among other things, defamation and lost profits arising from the Plaintiffs’ change of product certifier (the “VES Action”). In the VES Action, VES relies upon the existence and effectiveness of the 2013 Agreement and the 2015 Agreement.
[13] On March 29, 2018, VES brought a motion to stay this action on the basis that Ontario lacks jurisdiction simpliciter and is a forum non-conveniens such that France is the proper jurisdiction for this action (the “Jurisdiction Motion”). Until March-April 2018, the parties proceeded on the understanding that the Quality Agreement with respect to the 2013 Agreement had been signed. On April 5, 2018, after the Plaintiffs confirmed that they could not locate a copy of the signed Quality Agreement, VES amended its Statement of Claim to plead that the 2013 Agreement “never took effect” because the Quality Agreement was not signed.
[14] Telephone case conferences were held on April 30, 2018 and January 11, 2019 and the Jurisdiction Motion was scheduled to proceed before me on March 29, 2019. However, during a telephone case conference on February 6, 2019, the Plaintiffs advised that they were bringing this pleadings amendment motion. As set out in my Endorsement dated February 6, 2019, in light of the jurisdiction provision in the 2013 Agreement, the disposition of this motion may have a material impact on the Jurisdiction Motion. Therefore, the Jurisdiction Motion was adjourned sine die.
[15] The Plaintiffs seek leave to amend their Statement of Claim to plead and rely on the existence, effectiveness and enforceability of the 2013 Agreement and related amendments including that the Orders were made under the 2013 Agreement and/or the 2015 Agreement (the “Proposed Amendments”).
II. The Law and Analysis
[16] Rule 26.01 states:
“On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.”
[17] Amendments should be presumptively approved unless they would result in prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court's process; or they disclose no reasonable cause of action (Andersen Consulting v. Canada (Attorney General), 2001 CarswellOnt 3139 (C.A.) at para. 37; Schembri v. Way, 2012 ONCA 620 at paras. 25 and 44).
[18] Master MacLeod summarized the test for leave to amend pleadings under Rule 26.01 at paragraphs 19-22 of Plante v. Industrial Alliance Life Insurance Co., 2003 CarswellOnt 296:
“(a) The amendments must not result in irremediable prejudice. The onus of proving prejudice is on the party alleging it unless a limitation period has expired. In the latter case, the onus shifts and the party seeking the amendment must lead evidence to explain the delay and to displace the presumption of prejudice: [citations omitted]
(b) The amended pleading must be legally tenable. It is not necessary to tender evidence to support the claims nor is it necessary for the court to consider whether the amending party is able to prove its amended claim. The court must assume that the facts pleaded in the proposed amendment (unless patently ridiculous or incapable of proof) are true, and the only question is whether they disclose a cause of action. Amendments are to be granted unless the claim is clearly impossible of success. For this purpose amendments are to be read generously with allowance for deficiencies in drafting: [citations omitted].
(c) The proposed amendments must otherwise comply with the rules of pleading. For example, the proposed amendments must contain a "concise statement of material facts" relied on "but not the evidence by which those facts are to be proved" (rule 25.06(1)), the proposed amendments are not "scandalous, frivolous or vexatious" (rule 25.11(b)), the proposed amendments are not "an abuse of the process of the court" (rule 25.11(c)), the proposed amendments contain sufficient particulars -- for example, of fraud and misrepresentation (rule 25.06(8)).”
[19] Further guidance was provided by J.S. Fregeau J. in Essa v. Panontin, 2010 ONSC 691 at para. 8:
“To be allowed, the amendments requested by the Plaintiffs must be tenable at law. On a motion to add a party and/or to amend the statement of claim against existing parties, the court may not consider the factual and evidentiary merits of the proposed new claims. A court is not to concern itself with the credibility of the case set forth by a party seeking an amendment. The court, in its analysis, is not to consider whether the amending party is able to prove the amended claim. The court must assume the facts pleaded in the proposed amendment are true. The only question is whether they disclose a tenable cause of action. The court is not to make findings of fact or weigh evidence. Amendments are to be read generously with allowance for deficiencies in drafting.”
[20] The Court of Appeal summarized the applicable law regarding what constitutes a cause of action in 1100997 Ontario Ltd. v. North Elgin Centre Inc. 2016 ONCA 848:
19 A cause of action is "a factual situation the existence of which entitles one person to obtain from the court a remedy against another person": Letang v. Cooper, [1965] 1 Q.B. 232 (C.A.), at pp. 242-43, as adopted by this court in July v. Neal (1986), 57 O.R. (2d) 129 (C.A.), at para. 23.
20 In Morden & Perell, The Law of Civil Procedure in Ontario, 2nd ed. (Markham: LexisNexis Canada Inc., 2014), at p. 142, the authors state:
A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon which the original right of action is based. [Footnotes omitted.]
21 In Dee Ferraro Ltd. v. Pellizzari, this court noted the distinction between pleading a new cause of action and pleading a new or alternative remedy based on the same facts originally pleaded. The appellants had commenced an action against their lawyer claiming damages for breaches of contract, trust and fiduciary duty and for fraud and negligence. The appellants then sought to amend their pleading. This court, in overturning the motion judge's dismissal of the motion to amend, concluded that the proposed amendments, such as claims for a mandatory order and a constructive trust over shares, could be made because they flowed directly from facts previously pleaded.
22 By contrast, a proposed amendment will not be permitted where it advances a "fundamentally different claim" after the expiry of a limitation period: Frohlick v. Pinkerton Canada Ltd. In that case, the court did not permit the plaintiff in a wrongful dismissal action to amend the statement of claim to assert a claim for damages for constructive dismissal on the basis that the limitation period had expired. This court dismissed the appeal. The amendment regarding constructive dismissal related to events that occurred prior to the events described in the original statement of claim that were unrelated to that claim. The defendant was unaware of the new allegations prior to the plaintiff seeking the amendments, and the events were not put in issue or encompassed within the original claim.
23 Based on the foregoing, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a "fundamentally different claim" based on facts not originally pleaded.”
[21] The Divisional Court has held that proposed amendments which arise out of the same facts or factual matrix that was pleaded in the original statement of claim should be permitted, but if they do not, and a limitations period has expired, then the amendments should be refused (Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6359 at para. 22). In Farmers Oil, the Divisional Court held that the proposed amendments at issue were integral to the dealings already pleaded, factually intertwined with the existing allegations and part of the same factual matrix, adding:
“In the end result, the requirement to read a pleading generously, and the concomitant requirement to allow amendments unless they will inflict non-compensable prejudice, means that the presumption is that any amendment, that can reasonably be seen as falling within the four corners of the existing claim, ought to be permitted. In that regard, I agree with the sentiment expressed by Master Short in Brand Name Marketing Inc. v. Rogers Communications Inc., 2010 ONSC 2892, [2010] O.J. No. 5430 at para. 84:
I believe that equity dictates that if a defendant knows that the "finger of litigation" is pointing in its direction, and an action is commenced on a timely basis based on specific actions, this court ought to take appropriate steps to ensure that the true lis between the parties is addressed, rather than permitting one party to perhaps escape its possible liability by relying upon a technical Limitations Act defence.”(Farmers Oil at para. 31).”
[22] The courts have adopted a broader, factually-oriented and less technical approach to determining if a new cause of action is pleaded which is consistent with the purposive approach to the interpretation of limitations provisions, in particular, a defendant’s basic entitlement to have notice of the factual matrix from which a claim arises (1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 at paras. 18-24).
[23] With respect to actual or non-compensable prejudice, the Court of Appeal has provided the following guidance:
i.) there must be a causal connection between the non-compensable prejudice and the amendment such that the prejudice must flow from the amendments and not somewhere else;
ii.) the non-compensable prejudice must be actual prejudice, ie. evidence that the responding party has lost an opportunity in the litigation that cannot be compensated as a consequence of the amendment and specific details must be provided;
iii.) non-compensable prejudice does not include prejudice resulting from the potential success of the plea or the fact that the amended plea may increase the length or complexity of the trial (1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42, 2017 CarswellOnt 369 (C.A.) at para. 25; Andersen at paras. 34 and 37).
[24] VES submits that the Proposed Amendments should be denied because they seek to advance a new cause of action after the expiry of a limitation period. VES’ primary argument is that the introduction of the Proposed Amendments, based on the 2013 Agreement which was not initially pleaded, constitute a new cause of action. Counsel were unable to refer me to any case law on point including any authorities which stand for the general proposition that an amendment which relies on a new contract not initially pleaded constitutes a new cause of action. In this regard, VES relies on Chrabalowski v. BMO Nesbitt Burns Inc., 2011 ONSC 3392 and Seitz v. BMO Nesbitt Burns, 2012 ONSC 1825.
[25] There is no dispute that the Proposed Amendments are being sought after the passage of the applicable two-year limitations period under the Limitations Act (Ontario). Further, the Plaintiffs essentially conceded that there is no discoverability issue and made no substantive submissions on this point.
[26] Applying the relevant legal principles and on a generous reading, I reject VES’ assertion that the Proposed Amendments constitute a new cause of action. However characterized, the Proposed Amendments arise from the same factual matrix pleaded in the Original Claim, are inextricably intertwined and linked with the facts initially pleaded and do not seek to advance a fundamentally different claim. Namely, the Proposed Amendments relate to the same parties, the same Order, the same Invoices, the same time period and in support of the same damages. Similar to Farmers Oil, the Proposed Amendments are integral to the same dealings and transactions between the parties already pleaded. Further, the Plaintiffs seek to plead an alternative form of relief, such that if the Invoices are not owing under the 2015 Agreement, then they are owing under the 2013 Agreement. Both claims are based in contract and the terms of the 2013 Agreement are substantially similar to the 2015 Agreement including the Quality Agreement and jurisdiction provisions.
[27] In addition, applying a broad, purposive less technical approach, VES has had notice of the facts giving rise to the Proposed Amendments, the existence and effectiveness of the 2013 Agreement, since it was signed. In fact, VES initially pleaded these facts in the VES Claim.
[28] In my view, Chrabalowski and Seitz are distinguishable and do not stand for the general proposition that an amendment which relies on a new contract not initially pleaded constitutes a new cause of action. In Chrabalowski, the plaintiff in a wrongful dismissal action sought leave to increase his damages from $120,000 to $720,000 for loss of clientele. Justice Lederer, upholding the decision of Master Abrams, agreed that there was no legal nexus between the proposed claim for loss of clientele and the original wrongful dismissal claim such that the proposed claim constituted a new cause of action which was statute barred. Lederer J. agreed that the proposed claim for loss of clientele could not arise from the plaintiff’s employment contract and wrongful dismissal and that the contractual provisions, breaches and damages were different from those previously pleaded.
[29] In Seitz, a plaintiff sought leave to amend his original claim in a wrongful dismissal action to add new allegations regarding the loss of his “book of business”. Master Abrams held that not only were the proposed amendments not tenable, they constituted a new cause of action which was statute barred. In doing so, Master Abrams found that the proposed amendments, including increasing his damages from $350,000 to $1.3 million and adding new representations, were not based on the factual matrix originally pleaded. Further, the plaintiff did not initially plead a contractual obligation on the part of the defendant to transition his clients.
[30] Among other distinguishing facts, in both Chrabalowski and Seitz, the plaintiffs sought leave to make proposed amendments to introduce new, fundamentally different contractual claims and supporting facts not originally pleaded with substantially increased damages based on new theories of damages. Unlike these cases, the Proposed Amendments relate to the same transactions, business relationship, invoices, time period and damages as the Original Claim in which the Plaintiffs pleaded a contractual claim against VES based on an the 2015 Agreement which is substantially similar to the 2013 Agreement.
[31] VES further submits that the Proposed Amendments are not legally tenable. VES argues that because the Quality Agreement was the cornerstone of the 2013 Agreement and it was not signed, the 2013 Agreement was not effective and the Proposed Amendments are clearly impossible of success. Based on a generous reading of the Amended Claim, I am unable to arrive at this conclusion.
[32] The plain wording of the 2013 Agreement does not state that the 2013 Agreement is ineffective if a Quality Agreement is not signed. Rather, the 2013 Agreement states that no product shall be delivered until a Quality Agreement has been signed. Further, notwithstanding the fact that a Quality Agreement was not signed, VES placed orders, PMT delivered the orders and VES accepted them. This suggests, at the very least, that there are triable issues with respect to whether the 2013 Agreement is effective by performance and if the signing of a Quality Agreement was a fundamental term.
[33] Further, finding that the 2013 Agreement is ineffective would ignore VES’ admission that it believed the Orders were placed under the 2013 Agreement, its approval of subsequent amendments and its reliance on the 2013 Agreement in its own Statement of Claim. It would also be contrary to this Court’s role on a pleadings motion to, as VES requests, make findings regarding PMI’s alleged motives for not signing the Quality Agreement, the Plaintiffs’ switch of certifiers and the Plaintiffs’ credibility. Similarly, I also decline to conclude that VES (but not PMI) was operating under the mistaken impression that the Quality Agreement had been signed.
[34] In my view, assuming the Proposed Amendments are true, I conclude that they disclose a tenable cause of action and that they are not clearly impossible of success. Whether the 2013 Agreement is effective and enforceable and any related issues are determinations to be made by the trial Judge or a Judge on a summary judgment motion.
[35] VES also asserts that permitting the Proposed Amendments would result in actual prejudice. VES submits that the current scope of documentary production extends back to December 2014, however, if the Proposed Amendments are permitted, documents dating back to 2012 would become relevant. VES submits that actual prejudice would result because the available emails for 3 key employees only go back as far November 2013, after the 2013 Agreement was signed. VES asserts that this would prevent it from testing, among other things, the reasons why the Plaintiffs did not execute the Quality Agreement.
[36] I am not satisfied that permitting the Proposed Amendments would cause actual prejudice. The Original Claim already pleads that VES started ordering products from the Plaintiffs in 2012, prior to the 2013 Agreement, and that the business relationship and ordering continued until the Order was placed in December 2014 and into 2015 when this dispute arose. Therefore, documents and emails dating back to 2012 were relevant as a result of the Original Claim and any prejudice arising from the unavailability of documents prior to November 2013 does not arise from the Proposed Amendments. The fact that all 3 witnesses remain available to give evidence further supports the conclusion that there is no actual prejudice. There is also no basis for VES’ allegation that the Plaintiffs have lost key documents which would result in prejudice to the Plaintiffs simply because the Plaintiffs could not locate a copy of the executed Quality Agreement.
[37] I also do not accept VES’ position that the Amended Claim is a nullity and an abuse of process. VES argues that because the Plaintiffs have pleaded in both the Original Claim and the Amended Claim that PIC cancelled the 2015 Agreement and then subsequently assigned all of its rights to PMI, PIC had no rights to assign. VES has not brought a motion to strike the Original Claim advising the Court that it has not done so because it does not wish to attorn to Ontario. VES cannot have it both ways. If VES takes the position that the Original Claim is a nullity, it should bring a motion to strike the Original Claim, not advance this position to oppose amendments to the Original Claim while permitting the Original Claim to stand. Further, both PIC and PMI are Plaintiffs in the Original Claim and the Amended Claim therefore any issues with respect to which is the proper Plaintiff and whether the claim is a nullity can be determined at trial or on a summary judgment motion.
[38] Finally, I adopt Master Short’s comments from Name Marketing (cited in Farmers Oil). Equity demands that given VES’ knowledge of the Plaintiffs’ claim and the existence of the 2013 Agreement, this Court should not permit VES to escape potential liability based on a technical limitations defence.
[39] Having considered all of the relevant factors and circumstances, including the presumption that the Proposed Amendments should be permitted in the absence of actual prejudice, I conclude that the Plaintiffs have satisfied the applicable tests and should be granted leave to amend the Original Claim in the form of the Amended Claim.
III. Disposition and Costs
[40] Order to go granting the Plaintiffs leave to amend the Original Claim in the form of the Amended Claim with VES granted leave to plead additional and/or amended defences including limitations defences, as necessary.
[41] If the parties are unable to agree on costs, they may schedule a telephone case conference with me to speak to a timetable for the filing of written costs submissions and the Jurisdiction Motion.
Released: May 3, 2019 Master M.P. McGraw