Court File and Parties
COURT FILE NO.: 18-76363 DATE: July 11, 2019 HEARD: March 28, 2019
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SEABROOK et al v. MURISON et al
BEFORE: Master Fortier
COUNSEL: Cheryl Gerhardt-McLuckie, for the Plaintiffs Peter Mantas, for the Defendants
REASONS FOR DECISION
[1] The Plaintiffs bring a motion for an order striking out the Statement of Defence of the Defendants Bruce Donald Murison, Michael Dunleavy, Robert Lassig, Frank Ferrari, 2123388 Ontario Inc. Murison family trust, Standard Innovations Corporation and Exia Biomedical Inc., (“the Defendants”) with leave to amend or in the alternative, an order striking out several paragraphs of the Statement of Defence, with leave to amend.
Background
[2] This case involves an oppression claim under the provisions of the Canada Business Corporations Act, R.S.C. 1985, c.C-44, as amended, by minority shareholders of Standard Innovation Corporation (“SIC”), a Canadian corporation specializing in the development, manufacture and retail of adult intimate devices. SIC was founded by the Defendant Bruce Murison and his wife in 2004 and sold to Womanizer Group Management GmbH (“Womanizer”) on May 30, 2018.
[3] The Plaintiffs are former minority shareholders of SIC and the Defendants are directors and or shareholders of SIC. Some of the Defendants are also directors and or shareholders of the two other corporate Defendants, Obotics Inc. and Exia Biomedical Inc, to which corporations it is alleged assets of SIC were improperly directed.
[4] This litigation arises out of a series of alleged transactions between the Defendants SIC, Obotics Inc. and Exia Biomedical Inc. and the subsequent sale of SIC to Womanizer.
[5] The Statement of Claim was issued on May 4, 2018. After the issuance of the Statement of Claim, the shares of SIC, inclusive of the Plaintiffs’ shares were sold to Womanizer. The Statement of Claim was then amended on August 2, 2018.
[6] On November 12, 2018, the Defendants served and filed a Statement of Defence.
[7] The Plaintiffs seek an order striking the Statement of Defence in its’ entirety or in the alternative striking out paragraphs 3, 5, 17, 18, 22, 46, 48, 50, 59, 60, 67, 68 and 71.
Privilege Issue
[8] At the outset of this motion, counsel for the Plaintiffs requested that a letter attached as Exhibit “A” to the affidavit in the Defendant’s record be removed and sealed following the motion. The Plaintiffs argue that the letter dated January 12, 2018, from counsel for the Plaintiffs to counsel for the Defendants is protected by settlement privilege because it refers to settlement discussions between the parties. Counsel for the Defendants argues that the letter is not privileged as it refers to communications in the context of normal commercial negotiations between the parties in relation to a contemplated sale and is not directed to litigation, per se.
[9] The test to determine whether settlement privilege applies to a communication is as follows:
a) It must be made in the context of an existing or contemplated litigious dispute; b) It must be made with the express or implied intention it would not be disclosed in a subsequent legal proceeding if the negotiations failed; c) Its’ purpose must be to attempt to effect a settlement. [1]
[10] I do not agree with the Defendants that the January 12, 2018 letter was written in the context of a normal commercial transaction. In my view the letter contained an attempt to effect a settlement between the parties. Although there was no lawsuit in existence when the letter was sent, in my opinion, it is clear from the language of the letter that a lawsuit was within the contemplation of the parties. Further the letter implies an intention that it is made in confidence.
[11] In particular, paragraph 4 of the letter refers to “claims” against the Defendants in the event that the matter is not resolved in the manner contemplated by terms of the letter. There are also references to offers and the delivery of a direction or release in the event that an agreement between the parties is reached. Accordingly, in my view, all components of the test for settlement privilege are met and the letter ought to be removed from the Defendants’ motion record.
[12] In any event, in my view, the letter is not relevant for the purposes of this pleadings motion.
The Law
[13] Rule 25.06 of the Rules of Civil Procedure R.R.O. 1990, Reg. 194 (the Rules) , sets out the fundamental rules of pleading:
25.06(1) Every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proven.
(2) A party may raise any point of law in a pleading, but conclusions of law may be pleaded only if the material facts supporting them are pleaded.
[14] Rule 25.07 provides for particular pleading requirements for Defendants. Specifically, Defendants are deemed to admit all allegations of fact not denied unless the Defendant pleads no knowledge. In addition, a mere denial of facts is not sufficient. If the Defendant intends to prove a version of facts different from that pleaded by the opposite party, the other version must be pleaded.
[15] Rule 25.11 provides the basis for striking out or expunging all or part of a pleading. In particular, a pleading may be struck out if it may prejudice or delay the trial; is scandalous, frivolous or vexation; or is an abuse of process.
[16] The meaning of “scandalous”, “frivolous” and “vexatious” has been defined by the courts as follows:
. . . It is clear that a document that demonstrates a complete absence of material facts will be declared to be frivolous and vexatious. Similarly, portions of a pleading that are irrelevant, argumentative or inserted for colour, or that constitute bare allegations should be struck out as scandalous. The same applies to a document that contains only argument and includes unfounded and inflammatory attacks on the integrity of a party, and speculative, unsupported allegations of defamation. In such cases the offending statements will be struck out as being scandalous and vexatious. In addition, documents that are replete with conclusions, expressions of opinion, provide no indication whether information is based on personal knowledge or information and belief, and contain many irrelevant matters, will be rejected in their entirety. [2]
[17] A pleading cannot be “scandalous” if it is relevant and a defendant is entitled to plead whatever material facts it chooses in response to a plaintiff’s allegations as long as the allegations are relevant and of at least some probative value which is not outweighed by their prejudicial effect. [3]
[18] Nevertheless, a court may strike out portions of a pleading, even where the allegations are relevant, if the moving party can establish that they are of “marginal probative value and their probative value is outweighed by their prejudicial effect”. [4] This would include insulting one’s opponents in his or her pleadings. As held by Perell J. in Jacobson and Skurka : [5]
“…However provoked a party may be, it is marginally relevant and not pleading a material fact to insult one’s opponent and his or her pleadings with conclusory character assassination, which may have to wait a cross-examination at trial”.
[19] Finally, a fact that is not provable at the trial or that is incapable of affecting the outcome of the trial is not relevant and should not be pleaded. [6]
Position of the Parties
[20] The Plaintiffs argue that the Statement of Defence ought to be struck because it is :
a) significantly in breach of the rules of pleading; b) pleads allegations that are irrelevant, scandalous, frivolous and vexatious; c) is prolix; d) presents argument intended to advance the Defendants’ defence, rather than material facts; and e) improperly makes allegations in respect of the Plaintiff’s motive in pursuing the claim.
[21] According to the Plaintiffs, it would be appropriate to strike the entire Statement of Defence as it is “replete with argument, opinion colour, bald legal conclusions and contains inflammatory attacks on the integrity of the Plaintiffs”. [7]
[22] In the alternative, the Plaintiffs argue that paragraphs 3, 5, 17, 18, 22, 46, 48, 50, 59, 60, 67, 68 and 71 ought to be struck as they contain the most egregious violations of the rules of pleading.
[23] The Defendants argue that the rules of pleading require them to not only deny those allegations that it does not specifically admit but also to set out its own version of the facts in the defence. According to the Defendants, the Statement of Defence is in keeping with the rules of pleading and the fact that the version of events set out in the Defence aggrieves or upsets the Plaintiffs is not sufficient grounds to strike the Statement of Defence .
[24] The Defendants submit that their allegations are directly responsive to the allegations made in the Plaintiffs’ Statement of Claim and could be relevant to the issues and the proceeding- it is not for the court to limit the allegations at this stage to what it considers a reasonable defence.
[25] The Defendants further argue that motive is a relevant consideration in a claim for oppression remedy and as such may properly be pleaded in a statement of defence. The Defendants highlight the fact that the courts have held that an oppression remedy claim may not be brought for purely tactical reasons. [8] According to the Defendants, the plaintiffs’ motive in bringing this oppression remedy claim is a live and proper issue in this proceeding - the Defendants allege that the Plaintiffs commenced this action “in bad faith, for the improper purpose of extorting more money from SIC and its directors and shareholders.” [9]
Analysis and Disposition
[26] I do not agree with the Plaintiffs that the entire Statement of Defence offends the rules of pleadings and ought to be struck. I am also mindful that the Plaintiffs allegations of bad faith against the Defendants are central to the oppression remedy they seek and the Defendants are entitled to fully respond to such allegations, within the rules of pleading.
[27] In addition, while certain portions of the impugned paragraphs identified by the Plaintiffs conceivably offend the rules of pleading under rule 25.06 , in my view, only those that are clearly offensive ought to be struck, giving leave to the Defendants to amend the Statement of Defence.
[28] In my view, the paragraphs to be struck are scandalous, frivolous and vexatious in that in one way or the other the paragraphs:
a) Demonstrate an absence of material facts; b) Are irrelevant, argumentative or inserted for colour; c) Constitute bare allegations ; d) Contain only argument and include unfounded and inflammatory attacks on the integrity of a party; e) Contain bare conclusions and expressions of opinion.
[29] The paragraphs to be struck, along with my reasons for striking the paragraphs are as follows:
Paragraph: 3
“This case is about a remarkable Ottawa start up, Standard Innovation Corporation (“SIC”), which achieved global success. It is also about several shareholders, the Plaintiffs herein, who were not content with the extraordinary financial returns they received from SIC, and now, without justification, demand more. Their action herein is utterly without foundation in fact or law. It is motivated by jealousy, greed and a desire to settle personal grievances.”
Reasons:
This paragraph is replete with expressions of opinion, pleads no material facts, is argumentative and is inserted for colour. Although the Defendants argue that motive is a relevant consideration in a claim for oppression remedy, in my view, pleading that the action “is motivated by jealousy, greed and a desire to settle personal grievances” is irrelevant and embarrassing. Even if it were marginally relevant, it is not pleading a material fact “to insult one’s opponent and his or her pleadings with conclusory character assassination”. [10]
Paragraph 50
“The Plaintiffs’ claims with respect to the investments in Exia are ill-informed and rife with inaccuracies.”
Reasons:
In my view, this paragraph contains opinion, argument and fails to plead any material fact.
Paragraph 60
“Other than the acquisition of shares in Kiiroo by SIC, there is no relationship between any of the Defendants and Kiiroo. There is no relationship between the Defendants and Feel Robotics B.V. The allegation of some impropriety in the investment by SIC in Kiiroo is utterly without foundation. Moreover, SIC received full value in exchange for its investment in Kiiroo.”
Reasons :
The third sentence of this paragraph ought to be struck. It contains opinion, is argumentative and improperly draws a legal conclusion.
Paragraph 67:
“Most shareholders were supportive of the prospective transaction. However, the Plaintiffs, as part of an attempt to extract more money for themselves personally upon the sale, at the expense of the other shareholders and SIC, made numerous absurd and unsubstantiated threats. These included allegations found in the Claim. In accordance with their duty to act in the best interests of the Corporation, the Defendant directors refused to capitulate to these unreasonable demands, or to prefer the interests of these shareholders at the expense of the other shareholders and the Corporation.”
Reasons:
In my view, this paragraph ought to be struck in its entirety for the same reasons given with respect to paragraph 3.
Paragraph 68:
“Furthermore, and contrary to the Plaintiffs’ duty to support the sale under the drag along provisions in the Shareholders’ Agreement of the Corporation to which they were parties, the Plaintiffs opposed the transaction. Although, at various times, they were prepared to support the transaction in return for more money for themselves, at the expense of the other shareholders, and with casual disregard for the interests of SIC.”
Reasons:
This paragraph contains opinion and is argumentative and is inserted for colour. In addition, in my view, the last sentence contains improper reference to without prejudice settlement discussions.
Paragraph 71:
“Upon the acquisition of the shares of SIC by Womanizer, its shareholders, including the Plaintiffs, reaped significant financial reward. The allegation in the Claim that the sale was improvident is absurd. The sale price reflected a fair and proper valuation of SIC at the time of its sale and was in the best interests of all shareholders.
Reasons :
The second sentence of paragraph 71 contains argument and opinion and does not plead material facts. The word “absurd” is a gratuitous opinion that does not belong in a pleading. Street language of this sort is inappropriate. This sentence ought to be struck.
Order
[30] In summary, paragraphs 3, 50, 60, 67, 68 and 71 are struck with leave to amend in accordance with the courts reasons within 45 days of the date of this order.
[31] The letter attached as Exhibit “A” to the affidavit in the Defendants’ motion record shall be removed from the court record on the basis of privilege.
[32] If the parties cannot otherwise agree on costs, they shall send written submissions to me within 30 days of the date of this Order. Submissions shall be no longer than 3 pages in length.
Master Fortier
Footnotes:
[1] Sopinka, Lederman, and Bryant, The Law of Evidence in Canada , 3 rd Ed. at para. 14.322. [2] George v. Harris , [2000] O.J. No. 1762 , at para. 20 [3] Quizno’s Canada Restaurant Corp. v. Kileel Developments Ltd. 2008 ONCA 644 at para. 23. [4] Quizno’s at paras. 14 and 15. [5] 2015 ONSC 1699 at para. 64. [6] Simaei v. Hannaford , 2014 ONSC 7075 at para. 42. [7] Plaintiffs’ factum at para. 15. [8] Mason v. Intercity Properties Ltd , [1987] OJ No 448, at para. 47 (ONCA). [9] Defendants’ factum at para. 85. [10] Jacobson at para. 64.