Court File and Parties
COURT FILE NO.: CV-17-580589 DATE: 2019 06 21
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: GAVITA CANADA INC., Plaintiff - and - NATIONAL GROWER SUPPLY INC., Defendant
BEFORE: Master Todd Robinson
COUNSEL: D. Augruso, for the plaintiff M. Simon, student-at-law, for the defendant
HEARD: May 10, 2019
REASONS FOR DECISION
[1] This motion is brought by the plaintiff, Gavita Canada Inc. (“Gavita”), seeking orders compelling the defendant, National Grower Supply Inc. (“National Grower”), to deliver a sworn supplementary affidavit of documents listing documents referenced in its statement of defence, to attend an examination for discovery and answer proper questions, and for costs thrown away from a prior examination for discovery. National Grower opposes the motion on the basis that Gavita’s amalgamation into another corporation pursuant to the Canada Business Corporations Act, RSC, 1985, c. C-44 (“CBCA”) has resulted in a transfer or transmission of Gavita’s interest in this proceeding. National Grower’s position is that the action is stayed pursuant to Rule 11.01 of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”) pending an order to continue being obtained.
[2] For the reasons that follow, and having considered the relevant provisions of the CBCA and the Rules, I find that National Grower’s position is legally incorrect. An amalgamation under the CBCA does not result in a “transfer” or “transmission” of Gavita’s interest in the proceeding within the meaning of Rule 11.01. The action is not stayed and, accordingly, National Grower’s refusal to answer questions at its scheduled discovery on that basis was improper.
Preliminary Issue - Importance of Case Law
[3] The core disputed issue on this motion is interpretation of the interaction between s. 186 of the CBCA and Rule 11.01. While the factual circumstances of Gavita’s amalgamation are relevant, the main thrust of both parties’ arguments at the motion hearing were purely legal. Nevertheless, despite the clear need for legal interpretation, neither party submitted any factum or case law in support of their positions. In addition to filing no written legal argument or relevant case law, none of the materials filed included the provisions of the CBCA referred to extensively by both counsel in argument. At the hearing, two cases were submitted by National Grower in which amalgamation and orders to continue were noted to be part of the procedural history of the proceedings, but nether the amalgamation nor order to continue had any relevance to the reasons for the disposition of those cases.
[4] Putting a client “in the court’s hands” or making submissions of law without legal support provides no assistance to the court in assessing the validity of the arguments made: Wells Fargo Equipment Finance Company v Montesi Graphics Inc., 2016 ONSC 6507 at para. 26. When advancing a purely or substantially legal argument, it is not unreasonable for the court to expect that the parties come prepared with copies of relevant legislative extracts and relevant case law to assist the court in making its determinations. No such assistance was provided here.
Background
[5] This action was commenced by statement of claim issued on August 10, 2017. Gavita sues National Grower for non-payment of invoices rendered in relation to Gavita’s supply of lighting products. National Grower denies non-payment and disputes Gavita’s claim.
[6] When the action was issued, Gavita was an Ontario corporation. On August 2, 2018, a certificate of continuance was obtained by which Gavita continued as a federal corporation. Subsequently, on October 1, 2018, Gavita was amalgamated with three other corporations and continued as Hawthorne Canada Limited (“Hawthorne”). No notice of the amalgamation was given to National Grower, although it is not clear that Gavita’s counsel was aware of the amalgamation until it was relied upon by National Grower’s counsel as the basis of refusing discovery.
[7] On August 16, 2018, National Grower served its affidavit of documents. Gavita’s position is that the affidavit of documents fails to include copies of emails expressly referenced at paragraphs 10-15 of National Grower’s statement of defence.
[8] On October 16, 2018, Gavita requested discovery dates from National Grower. This was after the amalgamation. National Grower’s counsel responded by letter dated October 30, 2018 with proposed dates. He further confirmed that the email referenced at paragraph 10 of the statement of defence had already been produced, and that the remaining emails had been requested and would be forwarded “in due course”. Further back and forth about scheduling National Grower’s examination for discovery followed, culminating in an examination for discovery being scheduled for February 21, 2019 in Burlington, Ontario.
[9] That examination for discovery was brief. Once on the record, National Grower’s counsel immediately took the position that Gavita no longer existed and that he would not allow his client to be examined. The examination was accordingly adjourned by Gavita’s counsel.
[10] Following the examination, on the same day, Gavita’s counsel wrote to National Grower’s counsel objecting to his conduct at the examination, re-iterating the request for the emails referenced in the statement of defence, and confirming the amalgamation. Subsequent correspondence sets out the positions of the parties, which are consistent with the positions taken on this motion.
Analysis
Effect of Amalgamation
[11] Both Gavita (the amalgamating plaintiff) and Hawthorne (the amalgamated corporation) are federal companies, so the CBCA governs the amalgamation process. Relevant provisions of the CBCA are as follows:
Amalgamation
181 Two or more corporations, including holding and subsidiary corporations, may amalgamate and continue as one corporation.
Effect of certificate
186 On the date shown in a certificate of amalgamation (a) the amalgamation of the amalgamating corporations and their continuance as one corporation become effective; (b) the property of each amalgamating corporation continues to be the property of the amalgamated corporation; (c) the amalgamated corporation continues to be liable for the obligations of each amalgamating corporation; (d) an existing cause of action, claim or liability to prosecution is unaffected; (e) a civil, criminal or administrative action or proceeding pending by or against an amalgamating corporation may be continued to be prosecuted by or against the amalgamated corporation; (f) a conviction against, or ruling, order or judgment in favour of or against, an amalgamating corporation may be enforced by or against the amalgamated corporation; and (g) the articles of amalgamation are deemed to be the articles of incorporation of the amalgamated corporation and the certificate of amalgamation is deemed to be the certificate of incorporation of the amalgamated corporation.
[12] The relevant provisions of the Rules regarding the automatic stay and required order to continue upon a transfer or transmission of interest are as follows:
11.01 Where at any stage of a proceeding the interest or liability of a party is transferred or transmitted to another person by assignment, bankruptcy, death or other means, the proceeding shall be stayed with respect to the party whose interest or liability has been transferred or transmitted until an order to continue the proceeding by or against the other person has been obtained.
11.02 (1) Where a transfer or transmission of the interest or liability of a party takes place while a proceeding is pending, any interested person may, on filing an affidavit verifying the transfer or transmission of interest or liability, obtain on requisition from the registrar an order to continue (Form 11A), without notice to any other party.
(2) An order to continue shall be served forthwith on every other party.
[13] National Grower’s position is that amalgamation is a transfer or transmission of Gavita’s interest, that the action is stayed, and that an order to continue is required before further steps are taken. Gavita’s position is that there is no stay and that no amendments are required to the pleadings before the action continues.
[14] Gavita argues that National Grower’s position is the latest tactic to delay progress of the action. I agree that the record supports a lack of responsiveness and cooperation by National Grower. I question the propriety of agreeing to a discovery date, then attending the discovery only to refuse any questions on the basis of a change in the plaintiff’s status, but without giving any prior notice of that position and without bringing any corporate searches, case law or other support for the position. However, the issue on this motion is whether or not National Grower’s position is legally correct. Any discourtesy or impropriety in conduct of the examination goes to costs.
[15] National Grower argues that, upon amalgamation, the amalgamating corporations cease to exist and their interests and liabilities are transmitted to a new corporation, which is the amalgamated entity. Gavita submits that position is at odds with the language in s. 186 (e) of the CBCA, which provides that a civil action by an amalgamating corporation (such as Gavita) may continue to be prosecuted by the amalgamated corporation (in this case, Hawthorne). Gavita argues that this provision supports that no order to continue is needed. Section 186 (f) is to similar effect, confirming that an order or judgment in favour of (or against) Gavita may be enforced by (or against) Hawthorne.
[16] National Grower does not disagree that Hawthorne is entitled to prosecute the action, but argues that the right to prosecute this action (i.e., Gavita’s chose in action) has been transferred or transmitted to Hawthorne by “other means” as contemplated in Rule 11.01 (i.e., amalgamation). An order to continue is accordingly first required to comply with the Rules.
[17] As noted above, only two cases were provided, submitted by National Grower at the hearing. Neither assist in determining the issues on this motion. The first case, Omers Realty Management Corp. v. Peel (Regional Municipality), [2008] OJ No 3256 (SCJ), deals with an application for determination of entitlement to development charges. Subsequent to commencing the application, but prior to the hearing, the applicant amalgamated with other corporations and an order to continue was obtained. The order to continue only appears to be mentioned in the decision to explain why the applicant is different than the party involved in the subject dealings. The second case, CIT Financial Ltd. v. Williams, [2001] OJ No 3230 (SCJ), is the trial decision in an action for wrongful repossession of a car and termination of a lease. An order to continue was obtained following amalgamation of the original plaintiff with another corporation, and a further order to continue was subsequently obtained after the amalgamated corporation changed its name.
[18] I do not find elections by counsel to obtain an order to continue, without context as to why an order to continue was obtained, in any way persuasive in disposing of this motion. That other plaintiffs in other cases may have opted to obtain an order to continue following amalgamation does not mean that step is legally required.
[19] It is established law that, in statutory interpretation, words are to be read in their entire context and in their grammatical and ordinary sense: see, for example, Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429 at para. 59. I note the repeated use of “continue” throughout ss. 181 - 186 of the CBCA. Definitions for “continue” in the Oxford Dictionary include “persist in an activity of process”, “remain in existence, operation or a specified state”, and “recommence or resume.” Conversely, the Oxford Dictionary defines “transfer” as “move from one place to another” and “make over the possession of (property, a right, or a responsibility) to another”. “Transmit” is defined as “cause to pass from one place or person to another”.
[20] In my view, the plain and ordinary meaning of both “transfer” and “transmit” are inconsistent with the grammatical and ordinary meaning of “continue” in the context of ss. 181 - 186 of the CBCA. In particular, s. 186 (b) provides that “the property of each amalgamating corporation continues to be the property of the amalgamated corporation”. Gavita’s chose in action advanced by this proceeding is accordingly property that “continues” to be the property of Hawthorne. Had legislators intended such property to be transmitted or transferred, they could have used such language.
[21] The parties submitted that there is no case law on point. As it turns out, that is not correct. Although now somewhat dated, both the Ontario Court of Appeal (then the Supreme Court of Ontario, Appellate Division) and the Supreme Court of Canada have previously decided cases supporting that amalgamation does not result in a transfer or transmission of interest: see Stanward Corp. v. Denison Mines Ltd. (1966), 57 DLR (2d) 674 and Witco Chemical Co. v. Oakville (Town), [1975] 1 SCR 273.
[22] In Stanward, supra, Kelly J.A.’s view was that the provisions of the Corporations Act, 1953 (Ont.), c. 19, with similar language to the CBCA, supported that amalgamating companies do not form a new company, but rather continue to subsist as one company. In my view, Kelly J.A.’s view remains applicable to amalgamations under the CBCA and I similarly find that the language of s. 186 of the CBCA is “unambiguous in providing that the two amalgamating companies shall continue as one company”.
[23] I accordingly find that the operation of ss. 181 and 186 of the CBCA, by which amalgamating corporations “continue” as one corporation, is inconsistent with National Grower’s argument that the amalgamating corporations cease to exist. The provisions of s. 186 of the CBCA support that the amalgamating corporations are effectively merged into one corporation that has all interests and liabilities of the amalgamating corporations. Put another way, the amalgamated corporation is the amalgamating corporations.
[24] I adopt Kelly J.A.’s apt statement in Stanward, supra, at para. 19, as follows:
While it may be difficult to comprehend the exact metamorphosis which takes place, it is within the Legislature's competence to provide that what were hitherto two shall continue as one. Having done so it is apparent that there was no acquisition by a new entity; the corporate entities were continued in the amalgamated corporation.
[25] I accordingly find that there was no transmission of interest arising from Gavita’s amalgamation into Hawthorne. There is thereby no stay of proceedings under Rule 11.01. As provided in s. 186 of the CBCA, Hawthorne is entitled to continue to prosecute this action in Gavita’s name and Hawthorne continues to be liable for the obligations of Gavita, including any adverse costs awards that may be made.
Non-Production of Referenced Documents
[26] National Grower provides no explanation for its non-production of the emails referenced in the statement of defence. By letter dated October 30, 2018, National Grower’s counsel confirmed that the emails were being requested and would be provided. That has not happened.
[27] In response to this motion, National Grower complains that Gavita’s affidavit of documents is itself deficient, and further suggests that National Grower may now bring a counterclaim based on alleged liability to National Grower of another of the amalgamating corporations. No cross-motion was brought, so the sufficiency or insufficiency of Gavita’s affidavit of documents and a potential counterclaim have no bearing on this motion.
[28] National Grower’s evidence is that there is no discovery plan. Rule 29.1.03(2) does require that both parties agreed to a discovery plan before the earlier of (i) 60 days after the close of pleadings or such longer period as the parties may agree or (ii) attempting to obtain the evidence. However, neither party appears to have been concerned with having a formal discovery plan. Documentary discovery proceeded and oral discovery was scheduled without any objection being raised by either party to the failure to agree on a formal discovery plan. In my view, it therefore does not assist National Grower to raise the lack of a discovery plan in defence of this motion.
[29] Per the letter dated October 30, 2018, the email referenced at paragraph 10 of the statement of defence is already included in emails that have been produced. In the absence of any explanation for not producing the emails referenced in paragraphs 11-15 of the statement of defence, the requested order for a supplementary affidavit of documents is appropriate.
Re-attendance at Examination for Discovery
[30] The basis upon which National Grower refused to be examined was improper. Gavita is entitled to proceed with its examination, and National Grower shall accordingly produce George Dickinson for examination on a mutually convenient date by no later than 30 days from the date of this order, unless Gavita agrees otherwise. Such order is without prejudice to further examination in the event that National Grower does amend its statement of defence.
[31] Gavita is also entitled to costs thrown away from the improperly obstructed examination. National Grower’s objection, as disclosed in the post-examination exchange, was only that the action was technically stayed pending an order to continue being obtained. No prior notice of the position was given to Gavita’s counsel, resulting in unnecessary time and costs being expended in preparing for and attending a discovery that National Grower knew would not be proceeding.
[32] Substantial indemnity costs are not to be awarded unless special grounds exist to justify a departure from the usual partial indemnity scale, and are generally only warranted were there has been reprehensible, scandalous or outrageous conduct on the part of a party: Young v. Young, [1993] 4 SCR 3 at p. 134. National Grower starkly refused to allow Gavita’s examination to proceed. National Grower’s position was solely that Gavita first had to comply with a technical step of obtaining an order to continue, after which National Grower does not dispute that plaintiff’s counsel would be entitled to proceed with an examination. This is a straightforward over-the-counter process. No notice of that position was given prior to Gavita’s counsel preparing and travelling in Burlington for the examination. At the examination, National Grower did not have the corporate search relied upon, had no case law, and does not appear to have been willing to complete the examination on the basis that no further steps could be taken until the purely technical step of obtaining an order to continue was completed. In my view, National Grower’s conduct was highly obstructionist and grossly improper. It is fair and just that Gavita be fully reimbursed for the legal costs and disbursements thrown away as a direct result of such conduct.
[33] I have reviewed the costs outline of fees claimed as thrown away, which is included at Tab W of the motion record. The time spent travelling to Burlington for the examination, which was the location required by National Grower, and attending the examination should be reimbursed. A total of 2.8 hours of preparation time for the discovery is claimed, but much of that will not be thrown away, since counsel will not prepare again for the examination from scratch. Costs claimed for time on correspondence leading up to the examination is not recoverable as costs thrown away, since they are costs of the action. I accordingly fix costs thrown away at $1,976.50, plus HST, plus the examiner’s invoice of $295.44, payable by National Grower within 30 days.
Orders
[34] I accordingly order as follows:
(a) National Grower shall produce either a sworn supplementary affidavit of documents or a further and better affidavit of documents including the emails identified at paragraphs 11-15 of the statement of defence, plus any related emails relevant to the subject matter of those referenced emails within 15 days.
(b) National Grower shall produce George Dickinson as representative of National Grower for examination on a date mutually convenient to the parties by no later than 30 days from the date of this order, unless Gavita agrees otherwise.
(c) National Grower shall pay costs thrown away from the obstructed examination for discovery fixed in the amount of $2,528.89, inclusive of HST and disbursements, payable within 30 days.
(d) This order is effective without further formality.
Costs
[35] The parties have each filed costs outlines. Gavita should have its partial indemnity costs of this motion, subject only to any applicable offers to settle. If the parties are unable to resolve costs themselves, then Gavita shall deliver written costs submissions by July 5, 2019. National Grower shall deliver its responding submissions by July 17, 2019. There shall be no reply or oral costs submissions unless I direct otherwise. Costs submissions shall not exceed four pages, excluding any offers to settle or case law. They may be submitted directly to me by email.