Court File and Parties

COURT FILE NO.: CV-19-614203 DATE: 20191218

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Peter Irwin, Plaintiff AND: Canadian Professional Sales Association, Defendant

BEFORE: Master P.T.Sugunasiri

COUNSEL: Goodman, J. & McLennan, W.T. Counsel for the CPSA/Moving Party Weisberg, T. & Moran, D., Counsel for Irwin

HEARD: September 11, 2019

REASONS FOR DECISION

Overview:

[1] The CPSA is a not-for-profit organization located in Toronto. It provides sales professionals with tools, training, and resources to improve their performance. Part of the CPSA’s revenue comes from fees paid by its membership. In 2015, the CPSA hired Mr. Irwin as President and CEO.

[2] In November of 2018, the CPSA directed Mr. Irwin to present balanced budgets. Mr. Irwin failed to to do so. Between January 11 and January 15, 2019, the CPSA discussed Mr. Irwin’s options. Mr. Irwin declined the options the CPSA presented and he was terminated for cause on January 23, 2019.

[3] Mr. Irwin filed a Statement of Claim against the CPSA on February 8, 2019. His Claim refers to his discussions with CPSA’s representatives and the offers that they made. He characterizes them as pressure to retire in order to avoid paying Mr. Irwin his twelve-month contractual notice period. He relies on those facts to support his claim for breach of good faith in the manner of dismissal (“Wallace damages”) and punitive damages.

The CPSA moves to strike paragraphs 33(e), (f), 34-38, 40, 45 and 48(c) because they divulge privileged settlement offers made to buy peace. Irwin resists the motion on the basis that the offers were threats and he needs those paragraphs to support his bad faith and punitive damages claim.

The characterization of CPSA’s offers is a triable issue. It is not for a motions court to make findings of fact or rulings of law that will usurp the role of the trial judge. It is for any court to protect settlement privilege, when possible. I find that Irwin has raised a triable issue on the characterization of the CPSA’s offers and for that reason, is permitted to refer to the offers. However, Irwin has pleaded unnecessary evidence in some of the impugned paragraphs. I strike paragraphs 34-38 with leave to amend. Ultimately the trier of fact will determine if he or she will admit and weigh the details of the CPSA offers to support Irwin’s bad faith and punitive damages claim.

Issues:

[4] The CPSA invites me to determine whether CPSA’s verbal offer on January 11, 2019 and written offer of January 15, 2019 are bona fide offers to buy peace. If so, they are privileged communications that Irwin should not plead unless there are exceptions to the privilege.

[5] In my view, answering that question on a pleadings motion improperly usurps the role of the trial judge. Instead, the question to resolve at this early stage of the litigation is whether there a triable issue with respect to the characterization of the CPSA’s offers.

[6] In the circumstances of this case, there is a triable issue on the characterization of the CPSA’s offer letter. If Irwin succeeds in characterizing them as threats, he may be entitled to bad faith and punitive damages. Nevertheless, I strike the paragraphs 34-38 of the impugned pleadings with leave to amend. Irwin has pleaded more than he needs to raise the issue of threat. Removing these paragraphs minimizes public disclosure of what a trial judge may ultimately concluded are privileged communications. I explain my decision below.

Law and Analysis:

The appropriate test is to determine whether there is a triable issue on the characterization of the settlement offer

[7] According to the Supreme Court of Canada in Union Carbide Canada Inc. v Bombardier Inc., settlement privilege is a common law rule of evidence that protects communications exchanged by parties as they try to settle a dispute. It enables parties to have honest and frank discussions without fear that information they disclose will be used against them.[^1] In R. v Delchev, The Ontario Court of Appeal explains the rationale for guarding settlement privilege. Justice Tulloch states that settlement privilege is important because the parties would be reluctant to engage in settlement discussions if those discussions could be admitted at trial as evidence of concessions.[^2]

[8] In wrongful dismissal cases, courts have used this rule of evidence to strike out untested and unproven allegations in pleadings pursuant to Rule 25.11 as being scandalous.[^3] The underlying premise is that employer offers to buy peace notwithstanding its termination position is worthy of protection and promotes early resolution. The wisdom of using an evidentiary rule at the pleadings stage is clear in cases where pleading the settlement offer is used to argue the weakness of the employer’s litigation position. For example, in Hartley v JB Food Industries Ltd., the plaintiff pleaded that at the time of termination the employer offered to pay 2 months’ salary in lieu of notice. This, the plaintiff alleged, precluded the employer from denying that the plaintiff is entitled to notice.[^4] In wrongful dismissal cases, this is exactly the mischief that the doctrine of settlement privilege aims to avoid.

[9] The propriety of striking a settlement offer from a pleading is less clear when the plea is used to support a claim of bad faith, as in this case. In the employment context, a trial judge may award damages if she finds bad faith in the manner of dismissal.[^5] Pleadings provide the roadmap for the action. How does an employee put the issue of bad faith before the trial judge if a motions’ court has struck the allegations from the claim? In the present case, if I allow the CPSA offers to remain, CPSA argues that it would have a chilling effect on employer offers to avoid litigation. If I excise the details of the offers from the Claim, Irwin argues that he will be precluded from seeking bad faith damages. What sets the present scenario apart from a case like Hartley is that the alleged offers are relevant to the action. A bona fide settlement made to avoid litigation is irrelevant to the action.[^6] The possibility of a threat being cloaked as a settlement offer is relevant to an action in which the plaintiff has pleaded bad faith in the manner of termination.

[10] In my view, where the employer and employee disagree as to the characterization of an offer letter or its impact on other heads of relief or causes of action, the role of the court on a motion to strike under r. 25.11 is to assess whether there is a triable issue on the point. If there is a triable issue, a motions court should not make a finding of fact either way. This view is reflected in Ontario and other jurisdictions in the cases provided by the parties. In Prior v Sunnybrook and Women’s College Health Sciences Centre, Master McLeod (as he then was) notes that whether an “offer letter” should be construed as improper and proof of bad faith is not a matter to be resolved at the pleadings stage. Admissibility of evidence and the weight to be given to particular facts remain matters for trial.[^7] The BC Supreme Court has taken a similar view in Brandt v Tinkerdine 3D Print Systems Ltd.,[^8] Franklin v British Columbia Buildings Corp.[^9] and Pyke v Price Waterhouse Ltd.[^10] All three are wrongful dismissal cases in which the employee plaintiff pleads employer settlement offers as support for a claim of bad faith in the manner of termination. Justice Smith in Pyke points out that settlement privilege is an evidentiary rule and not a rule of pleading. “It is concerned with the nature of the materials that may be placed before the court at the trial…”[^11] In Franklin¸ Master Patterson held that for the employer to succeed in striking the settlement offer from the pleading, it must be absolutely clear that the paragraph offends the BC equivalent of rule 25.11. He found that whether employer’s offer was a threat was relevant and therefore not scandalous, frivolous, vexatious or an abuse of process.[^12]

The threshold for determining if there is a triable issue is the “air of reality” test

[11] In Ontario, the importance of respecting the role of the trial judge is evident from the approach we take to other pleadings motions. These other types of motions should guide the court’s approach in motions to strike settlement offers from pleadings where the characterization of the offer is in question. I suggest that the threshold is whether there is an “air of reality” to the allegation that the settlement offer is a threat or needed to support a claim of bad faith, mental distress or punitive damages.

[12] Three common motions to strike pleadings are:

a. Rule 21.01(1)(b) – motion to strike a cause of action;

b. Rule 26.01 – motion to amend a statement of claim; and

c. Rule 19.08 – motion to set aside default judgment.

[13] In each of the instances, the motions court acts as a gatekeeper of allegations but not the final arbiter. For example, the test on Rule 21.01(1)(b) motions is whether the impugned cause of action has no possibility of success based solely on the pleadings.[^13] The purpose of the rule is to weed out claims that are clearly unmeritorious but leave for the trier of fact any claims that have some chance of success, however tenuous. Similarly, rule 26.01 involves a tenability assessment. If the proposed amendment to a statement of claim is not prima facie meritorious and an issue worthy of trial, then a motions court will deny the amendment.[^14] Finally, in motions to set aside default judgment, one of the criteria is whether there is an air of reality to the proposed defence. To meet the “air of reality” test, the proposed defence must be tenable in law and the defendant must lead some evidence to demonstrate that it is not devoid of factual and/or legal foundation.[^15] Once this threshold is met, the motions court allows the defendant to advance its defence to be heard on the merits by a trial judge. The motions court does not make a final determination on the merits of the defence.

[14] Given the importance of protecting settlement privilege, I would adopt the more difficult air of reality test for motions to strike pleadings that contain what may be bona fide settlement offers. Having reviewed the jurisprudence the parties rely on in this motion, I observe that some motions courts have essentially applied this test. In Bonneville the court struck out a reference to an employer settlement offer even though the employee pleaded that the offer exacerbated the employee’s mental distress because it added an element of indignity or insult. In striking the pleading, Justice Sutherland noted a) that the only evidence before him was that the offer was to buy peace; and b) that he was not persuaded that a plaintiff, already faced with a statement that he has been terminated for cause forthwith, can be said to have his mental distress exacerbated when, along with that statement the employer makes a gratuitous offer of settlement to buy peace.[^16] In other words, the employee’s claim did not have an air of reality – it lacked the legal and factual foundation to override an important public interest in protecting settlement offers. In Prior, Master McLeod refused to strike a claim because “I am of the view that the facts, if accurate would not constitute a bona fide offer to settle. Rather, they might constitute an improper threat or inducement and may be material to proving bad faith or malice. It may also be material to the claim for punitive damages.”[^17] In other words, based on the evidence of the record, Master McLeod concluded that there was a triable issue on the characterization of the employer’s settlement offer. There was an air of reality that the settlement offer could be a threat.

[15] In sum, I have gleaned the following test from the cases provided by the parties: In wrongful dismissal cases where a party moves to strike references to settlement offers in the pleading, the court should consider the following factors:

a. Do that the impugned paragraphs contain a reasonable claim to settlement privilege?

b. Is the settlement offer relevant to the issues in the trial other than to use the offer to prove the weakness of the other party’s case;

c. If the settlement offer is pleaded in support of allegations of bad faith, mental distress or punitive damages, do those allegations have an air of reality?

[16] If the answer to a, b, and c, is yes, the pleading raises a triable issue and the impugned paragraphs should generally remain, subject to the court’s residual discretion to consider the specific circumstances of the case and the overall interests of justice. The onus is on the party seeking to strike the pleading to establish a reasonable claim to settlement privilege. This is a low threshold. The onus then shifts to the party protecting the pleading to establish its purpose and the air of reality test. In doing so, the parties should tender some evidence. But like in motions to set aside default judgment, the inquiry is not a deep dive.

[17] In this case, the CPSA alleges that the impugned paragraphs improperly plead the terms of the January 15, 2019 letter that it sent to Mr. Irwin as an offer to buy peace and prior offers. The paragraphs the CPSA challenges read as follows:

Paragraph 33(e) and (f): Following the presentation, Irwin met with Macdonald and Sonberg. During this meeting Irwin was advised of the following: they wanted a smooth transition and for Irwin to stay on as President and CEO for six (6) months until a replacement was found; and Irwin’s departure could be positioned as a retirement;

Paragraph 34: In response Irwin advised that he needed some time to think about the six (6) months transition period but agreed an orderly transition was best for everyone;

Paragraph 36: that “MacDonald emailed a letter to Irwin advising of the termination of his employment (the “Termination Letter”). The Termination Letter was marked without prejudice;

Paragraph 37: that the “Termination Letter” stated that “the Board felt that the “high integrity” solution that was available to Irwin was to announce plans for his retirement and remain in position through a transition period until June 30, 2019”, and that if he chose not to accept the Offer he could announce his retirement and leave immediately. The Plaintiff goes on to quote verbatim the final paragraphs of the January 15th letter;

Paragraph 38: that he “refused to be pressured into retiring under threat of being terminated for just cause”;

Paragraph 40: that the Association made a threat “to retire or be terminated for cause”;

Paragraph 45: that the Association acted in bad faith “when it attempted to pressure Irwin into retiring”; and

Paragraph 48(c): “the Board’s threat to terminate Irwin for just cause if he did not retire”.

[18] Having reviewed the Macdonald and Bullock Affidavits, I am satisfied that the CPSA has demonstrated a reasonable claim to settlement privilege. The parties agree that three conditions must be met to establish settlement privilege:

a. Litigation must be in existence or within contemplation;

b. The communication must be made with the express or implied intention that it would not be disclosed to the court if the negotiations failed; and

c. The purpose of the communication must be to attempt to effect settlement.[^18]

[19] The CPSA’s evidence bears out at least a reasonable possibility that at the time it made offers to Irwin, litigation was within contemplation, that its private conversations with Irwin imply an intention to keep any offers confidential and not disclosed to the court, and that the purpose of offering some working notice was to settle what they thought might be a dispute over a termination for cause. It is for the trial judge to determine if the CPSA can in fact make out a claim for settlement privilege. At that time Irwin can raise all the arguments it raises in its factum as to why the Hollinger test is not met. At this early stage, the CPSA has provided enough information to raise a reasonable claim to settlement privilege over its offers.

[20] I am also satisfied that Irwin seeks to use the offer to support allegations of bad faith, and not as a basis to weaken the CPSA’s position on cause or notice. That is clear from the Statement of Claim.

[21] Finally, I am satisfied that Irwin has raised a triable issue on the characterization of the CPSA’s January 11 and 15 offers. There is an air of reality to its allegation that these offers were threats. He has pointed to case law that considers the “resign or fire” scenario as being involuntary and therefore not a bona fide offer.[^19] The surrounding circumstances of the CPSA’s conversations with Irwin raises the possibility that the CPSA used termination for cause to squeeze him out and deny him his contractual notice.

[22] Having said that, Irwin’s pleading goes beyond material facts and ventures into the realm of evidence. At the hearing the CPSA had an opportunity to suggest what edits to the impugned pleading they would favour. Irwin also had an opportunity to comment. In the normal course I would not interfere with the occasional seepage of evidence into a pleading. The difference between evidence and material facts is not always a bright line. However, given the possible sensitivity of the impugned paragraphs and the importance of protecting what may be privileged communications, I rely on r. 25.11 to strike paragraphs 34-38 with leave to amend. Under r. 25.11, a pleading that pleads evidence can be scandalous or frivolous because it violates the rules of pleading.

[23] In my view, these paragraphs improperly plead evidence. For example, there is no need to put the entire conversation between Irwin and the CPSA representatives in paragraph 34. There is no need to put the entire January 15, 2019 letter in paragraph 37. The gist of Irwin’s allegation is that between January 11 and January 23, 2019 he was asked to assist the CPSA in transitioning to a new management team and to retire with or without working notice under threat of being terminated for cause. This is all that Irwin needs to say to frame the pleading and support his allegation of bad faith. The rest are simply evidence of this material fact. The parties can explore the details at discovery and offer evidence of the phone calls, meetings, emails and letter at the hearing subject to the trial judge’s rulings on admissibility and weight.

Disposition:

[24] I strike paragraphs 34-38 of the Statement of Claim with leave to amend. To be clear, I permit Irwin to refer to communications which the in order to support his bad faith and punitive damages claims, but he must limit his plea to material facts and not evidence. Ideally the parties can agree to any proposed amendments. If they are unable to do so, they may convene a case conference with me by contacting Christine.Meditskos@ontario.ca. I remain seized of any issues arising from Irwin’s proposed amendments and will retain the file in my chambers.

Costs:

[25] I strongly urge the parties to resolve the issue of costs. If they cannot, Irwin may submit his costs outline and no more than three-pages double-spaced of submissions by January 10, 2020. The CPSA may respond with the same parameters by January 24, 2020. Irwin may reply with a one-page submission by January 28, 2020.

Original signed

Master P.Tamara Sugunasiri

Date: December 18, 2019

[^1]: Union Carbide Canada Inc. v Bombardier Inc., 2014 SCC 35 at para 31. [^2]: R v Delchev, 2015 ONCA 381 at paras. 30, 31. [^3]: See Ramos v Hewlett-Packard (Canada) Co., 2017 ONSC 4413 at para. 7, Roberts v Zoomermedia, 2015 ONSC 1120 at para. 13 (Master); Canadian Gateway Development Corp. v National Capital Commission, [2002] OJ No 3167 (Master SC), Williamson v Grant Brown National Leasing Inc., 1986 CarswellOnt 608 at para 10 (HC) and Bonneville v Hyundai Auto Canada Inc., 1988 CarswellOnt 337 at paras 10, 11. [^4]: Hartley v JB Food Industries Ltd., [1986] OJ No 608 at para. 1. [^5]: Honda Canada Inc. v Keays, 2008 SCC 39 at paras. 58-60; Wallace v United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 SCR. 701. [^6]: Williamson supra at para 10 (Ont HC). [^7]: Prior v Sunnybrook and Women’s College Health Sciences Centre, 2006 CanLII 17329 at para 8. [^8]: Brandt v Tinkerdine 3D Print Systems Ltd., 2015 BCSC 682. [^9]: Franklin v British Columbia Buildings Corp., 2000 BCSC 389. [^10]: Pyke v. Price Waterhouse Ltd., [1995] BCJ No. 1172. [^11]: Pyke at para 18. [^12]: Franklin supra at para. 13. [^13]: Hunt v Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] SCJ No 93 and R. v Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] SCJ No 42. [^14]: Marks v City of Ottawa, 2011 ONCA 248 at para. 19. [^15]: See for example a summary of the law in Long Term Recovery Ltd. v. Bolden, 2018 ONSC 4918 at paras 24-27. [^16]: Bonneville, supra at paras 7 and 13. [^17]: Prior, supra at para 10. [^18]: Re Hollinger Inc., 2011 ONCA 579 at para. 16. [^19]: See Zoomermedia, supra at para. 28 and Chan v Dencan Restaurants Inc., [2011] BCJ No 2058.