COURT FILE NO.: 1576/16 DATE: 2020 03 10 SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN: File No.: 1576/16 RE: PAUL OFFIERSKI, Applicant AND: 2253001 ONTARIO INC. and STANLEY CAPOBIANCO, Respondents

APPLICATION UNDER Rule 14.05(2) of the Rules of Civil Procedure and Sections 207 and 248 of the Business Corporations Act, R.S.O. 1990. CHAPTER B.16 as amended

AND BETWEEN: File No.: 3078/16 RE: STANLEY CAPOBIANCO, Plaintiff AND: 2253001 ONTARIO INC. and PAUL OFFIERSKI, Defendants

BEFORE: Coats J.

COUNSEL: Cameron D. Neil, Counsel for the Applicant/Defendant, Paul Offierski Roger B. Campbell, Counsel for the Respondent/Plaintiff, Stanley Capobianco

HEARD: January 9, 2020

Endorsement

Issue:

[1] The Respondent/Plaintiff, Stanley Capobianco (the “Respondent”), made a motion to strike the following parts from the Statement of Defence and Counterclaim of the Applicant/Defendant, Paul Offierski (the “Applicant”):

i. The last sentence of paragraph 12; ii. Paragraphs 43-67; and iii. The third sentence of paragraph 69.

[2] In addition, the Respondent seeks an order extending the time for delivery of his Reply and Defence to Counterclaim until 20 days after the final disposition of the motion, or if the motion is granted, 20 days after an amended pleading is delivered by the Applicant.

History of Proceeding:

[3] The proceeding under court file number 1576/16 had been commenced as an application on May 20, 2016. In September 2016, I ordered that all relief sought in the Notice of Application – except as it related to the sale of the farm properties owned by 2253001 Ontario Inc. (the “Corporation”) – was to form the subject matter of a trial of an issue. Principal amongst the relief to be sought at trial, is an accounting of the shareholders’ loans and accounts.

[4] A related separate proceeding under court file No. 3078/16 was commenced on October 12, 2016, as a mortgage action.

[5] The two farm properties owned by the Corporation have been sold under terms of court orders made in the application; one order by Gray J. on November 23, 2016, and another by Fitzpatrick J. on February 23, 2017. Pursuant to the February 23, 2017 order, the net proceeds of sale ($591,618.09) were paid into court in March 2017, pending further order of the court or agreement between the parties.

[6] At a case management conference before me on April 12, 2019, I ordered, on consent, that the application and mortgage application be consolidated and that Stanley Capobianco deliver a Statement of Claim, to be followed by Paul Offierski’s Statement of Defence and Counterclaim, and then any Reply and Defence to Counterclaim by Stanley Capobianco.

[7] Stanley Capobianco delivered a Statement of Claim dated May 14, 2019. Mr. Offierski delivered a Statement of Defence and Counterclaim dated June 24, 2019. It is this Statement of Defence and Counterclaim that is the subject of this motion to strike.

[8] The Corporation has not responded to the application or defended the mortgage action. The Corporation is not represented.

The Nature of the Claims

[9] The Respondent made many claims against the Applicant. These are set out in para. 7 of his Statement of Claim as follows:

7. Stanley Capobianco (“Stan”) claims, collectively or in the alternative: (a) Payment of amounts payable to him under the $191k and $400k mortgages (as described herein) for legal expenses and property appraisal expenses, plus interest thereon, to be paid in priority out of the proceeds in Court or, alternatively, by Paul Offierski (“Paul”); (b) An Order that all funds in Court together with any interest be paid to Stan; (c) A Declaration that Paul holds in trust his ownership interest in PAO Horticultural, a Division of 711811 Ontario Inc. (“PAO”) for the benefit of Stan; (d) A Declaration that Paul holds in trust his shares in the Corporation for the benefit of Stan; (e) An accounting by Paul as to all amounts received by the Corporation as to all operations and assets of the Corporation and to all amounts received by Paul or PAO from the Corporation or from the sale, rental or disposal of any assets of the Corporation, particularly including and not limited to crops, animals and equipment; (f) A mandatory Order requiring that Paul deliver up to Stan or, alternatively, make available to Stan for his inspection all books and records of or relating to the Corporation in the possession, power or control of Paul as to any dealings or transactions by or with the Corporation or as to any assets of the Corporation; (g) An accounting by Paul and payment to Stan, or alternatively to the Corporation, of all monies received by Paul in which the Corporation had an interest or to which the Corporation was entitled, and of all profits received by Paull or by PAO from the use, expenditure of disposition of monies so received by Paul; (h) A tracing order in favour of Stan to determine the ultimate recipients of all funds that originated with the Corporation and were received by or provided to Paul or PAO as a result of their wrongful conduct as described herein; (i) A Declaration that Paul and PAO hold in trust for the benefit of Stan or, alternatively, the Corporation, all revenue and profits made or received by Paul or PAO as result of Paul’s wrongful conduct as described herein; (j) A Declaration that Paul and PAO hold any real or personal property or any other asset purchased in whole or in part from funds which belonged to the Corporation or to which the Corporation was entitled, as constructive trustee for Stan; (k) Damages for breach of fiduciary duty and for failure to contribute equally to the Corporation and to make payments for the Josman/Benson mortgage in the amount of $250,000.00, including all investigative costs incurred by Stan; (l) Restitution from Paul for unjust enrichment; (m) An Order compensating Stan as an aggrieved person under section 248(3) (j) of the Business Corporations Act of Ontario; (n) Aggravated, exemplary or punitive damages in the amount of $100,000.00; (o) Compound pre-judgment and post-judgment interest on payments ordered to be made by Paul and on damages awarded, on equitable principles; (p) In the alternative, pre-judgment interest under the Courts of Justice Act; (q) Leave, if required, to prosecute this action on behalf of the Corporation; (r) His costs of the Application, the Mortgage Action and the consolidated proceeding on a substantial indemnity basis, including applicable taxes; (s) Such further and other relief as to this Honourable Court deems just.

[10] The Applicant has denied that the Respondent is entitled to any of the relief sought and has made several claims by Counterclaim. The Applicant’s claims are set out at para. 91 of the Statement of Defence and Counterclaim, under the heading Counterclaim and are as follows:

91. Paul Claims: (a) a declaration that the Notices of Sale under power of sale issued by Stan were void and unenforceable; (b) a declaration that Stan is not entitled to legal expenses or property appraisal expenses related to his invalid power of sale proceedings; (c) a declaration that Stan was never a legitimate ‘mortgagee in possession’; (d) an Order that funds in Court together with any interest therein be paid out to Paul and Stan on a pro-rata basis, based on their respective contributions less their respective receipts and distributions, or on such other fair and equitable basis as to this Court may seem just; (e) a determination as to the APM’s entitlement to payment of the disputed invoice by the Corporation, if any; (f) prejudgment interest in accordance with section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended; (g) postjudgment interest in accordance with section 129 of the Courts of Justice Act; (h) the costs of the Application, the Mortgage Action and this consolidated proceeding, plus all applicable taxes; and, (i) Such further and other Relief as to this Honourable Court may seem just.

[11] The Respondent has not yet filed his Reply and Defence to Counterclaim pending determination of this motion.

[12] Entitlement to costs of the motion approving the sale of the farm property at 5615 Campbellville Road, Milton (including the Respondent’s cross-motion) were determined by Gray J.

[13] The order of Fitzpatrick J. approving the sale of the farm property at 9248 Tremaine Road, Milton, was made on consent and provided that costs were reserved to the judge hearing the main application. The April 19, 2019 order (also made on consent), provided that the entire application be converted into an action and that the costs of the application be reserved to the trial judge.

Basic Summary of Facts

[14] The Corporation is effectively a corporate partnership of which the Respondent and Applicant are partners.

[15] The Corporation’s main assets were the two farms referred to above. Both farms were purchased in September 2012.

[16] As set out above, both farm properties have now been sold and the net proceeds paid into Court.

Governing Rules of Civil Procedure

[17] The following rules of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”), govern this motion:

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 proved.

25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action; (b) is scandalous, frivolous or vexatious; or (c) is an abuse of the process of the court.

[18] The Respondent also relies on r. 1.04(1) which provides that:

1.04 (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

Respondent’s Position

[19] The Respondent requests that the impugned paragraphs be struck based on several grounds. I will highlight the most relevant of these which were relied upon in the Respondent’s oral argument.

[20] The Respondent’s position is that paras. 43-67 of the Statement of Defence and Counterclaim relate to the Applicant’s claim for costs from the motion to sell the farm property on Tremaine Road. The costs of the motion were reserved to the judge hearing the main application by Fitzpatrick J., and then reserved to the trial judge by my order of April 12, 2019.

[21] The Respondent submits that these paragraphs are argument and evidence regarding the Applicant’s entitlement to costs.

[22] The Respondent argues that these paragraphs clearly refer to costs, as similar paragraphs were included in the Applicant’s Case Conference Brief from April 12, 2019. In that Brief, the Applicant had described two very distinct phases of the litigation – a sale phase and an accounting phase. The Applicant had indicated that the sale phase had to be dealt with in respect of costs and that this was a priority for the Applicant. Similar paragraphs to the impugned paragraphs in the Statement of Defence and Counterclaim were included in the Conference Brief under the heading “The Sale Phase.”

[23] The Respondent states that costs are not an issue to be dealt with in a pleadings but are a separate matter to be decided after all of the issues have been resolved. Parts of pleadings which are only relevant to the issue of costs should be struck. The Respondent submits that if these paragraphs are not struck, it will expend the ambit of discovery and cause undue expense and delay. The Respondent relies on the second last paragraph (paragraphs are unnumbered) of A.I. MacFarlane & Associates Ltd. v. Delong, 55 O.R. (2d) 89 (Ont. H.C.J) which provides as follows:

It seems to me that to permit a pleading which is only relevant to the issue of costs, whether it be solicitor-and-client costs, or party-and-party costs, would be a dangerous precedent. Costs are not an issue and are not part of the lis between the parties but are a separate matter to be decided after all of the issues have been settled. If a party is allowed to plead factors which are only relevant to the issue of costs pleadings could conceivably become, to a large degree, involved with that issue. As examples, a litigant could plead that the complexity of the proceedings entitles it to solicitor-and-client costs or a litigant could plead that the importance of the issues entitles it to such costs. These are factors relevant to the cost issue which could find their way into the pleadings if Master Donkin’s ruling is allowed to stand.

[24] This same concern was referred to by Master Muir in E.O.E. Group Inc. v. Konica Minolta Business Solutions (Canada) Ltd. et al, 2012 ONSC 197, at paras. 10-11.

[25] The Respondent’s position is that since the impugned paragraphs deal with costs – and costs are not part of the lis between the parties – the paragraphs have no connection or relevance to the cause of action and should be struck. The Respondent relies on Taylor v. Canada Cartage System Diversified GP Inc., 2018 ONSC 617, which provides as follows:

[9] Ordinarily, on a motion such as this, the motion is determined on a reading of the allegations within the pleading under attack, as if they were true or could be proven. The real issue is whether or not the allegations in the impugned pleading have any connection or relevance to the cause of action being asserted.

[26] The Respondent also seeks to strike the impugned paragraphs on the basis of disproportionality. This is linked to the Respondent’s first argument, where he submits the impugned paragraphs are only relevant to costs. If he is compelled to respond to these paragraphs, this will increase the scope of the litigation (discovery, productions, trial time etc.) in a disproportional manner.

[27] In this regard, the Respondent relies on Canadian National Railway Company v. Brant et al., 96 O.R. (3d) 734 (Ont. S.C.), which states:

[29] One of the reasons for this rule is that the pleadings define the issues in the action. If a party is required to respond to irrelevant facts, inquire into those facts on discovery and respond to evidence of those facts at trial, the litigation and trial will be diverted by inquiries into facts that have no connection to the real issue before the court.

[28] The Respondent submits that proportionality under r. 1.04(1) of the Rules of Civil Procedure is to be considered on a r. 25.11 Motion. He also submits that the added complexity, expense and potential prejudice of allowing the pleading to stand must be balanced against the potential probative value of what has been pleaded. Specifically, the Respondent relies on the following passages from Javitz v. BMO Nesbitt Burns Inc. et al., 2011 ONSC 1332, to support this position:

[23] The defendants seek to strike these allegations based on rule 25.11. They submit that these allegations expand the complexity and expense of the litigation while providing little or no probative value. Furthermore, the case of Brodie v. Thomson Kernaghan & Co.,…where such a pleading was disallowed, is remarkably similar to this case. They also state that the principle of proportionality set forth in rule 1.04 should be applied.

[25] In my view, these portions of the pleading should be struck on a number of grounds. These allegations will greatly expand the breadth, complexity and expense of the litigation in circumstances where the corresponding probative value is minimal. Discovery of the massive fraud including other customer accounts would be required. An examination of the circumstances of each fraud and what Nesbitt knew of each of them and disclosure of detailed, confidential financial information of other Nesbitt customers would be required. As Molloy J. stated in Brodie on the issue of an investment advisor's conduct relating to other investors:

It adds very little to the plaintiff's claim and its absence could not deprive her of a cause of action or reduce any compensatory damages to which she might be entitled. On the other hand, allowing the pleading to stand will result in a far more expensive and complex proceeding. Production and discovery will be considerably more protracted and complicated. There will likely be numerous interlocutory motions in respect of confidentiality issues and the rights of non-parties to protect their privacy…

[27] Significantly, in my view, rule 1.04(1.1) must also be considered. It provides that "In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding."

[29] I have no hesitation in concluding that on a rule 25.11 motion, the principle of proportionality should inform the balancing of the added complexity and potential prejudice against the potential probative value of the alleged facts. I disagree with the plaintiff's position that it would be redundant to overlay the similar fact test with the rule on proportionality. The language of rule 1.04(1.1) is clear as to the court's obligation in this regard and its language is not limited in any way. In addition, in my view, it is unnecessarily cumbersome, inefficient and expensive to leave the issue of proportionality to the discovery phase of the litigation as submitted by counsel for the plaintiff.

[31] Examination of other customers' accounts and the massive fraud issues would be a distraction from the main issues in the litigation, namely, did BMO have actual knowledge of Rao's fraud and fail to fulfill its duty of care to the plaintiffs; is Nesbitt vicariously liable for Rao's actions; was there a contract between Nesbitt and Javitz; and did Nesbitt breach its duty to Javitz in failing to supervise Rao? These are the issues truly engaged by this litigation and narrowing the scope serves all of the parties' interests in obtaining a timely judicial resolution to their dispute. As to evidence of increased complexity and prejudicial effect, it is obvious to me that the scope of the litigation would be expanded greatly were the pleading to stand and evidence of that fact is unnecessary.

[29] The Javitz decision has been referred to and applied in two other cases that the Respondent refers to. In Resolute Forest Products Inc. v. Greenpeace, 2016 ONSC 5398, the Divisional Court considered whether the motions judge had erred in failing to balance prejudice from the impugned pleadings against their probative value. Paras. 73, 74, 75, 78 and 79 of the decision provide as follows:

[73] The motions judge found that he could not find that the impugned pleadings would actually prejudice or unfairly delay the trial. As a result of this conclusion, the motions judge did not find it necessary to go on to balance prejudice against probative value, the essence of the test under subrule 25.11(a). Pepall J., as she then was, reviewed a similar situation in a case involving alleged fraud against an investment dealer. One of the allegations was that the allegedly fraudulent employee was not supervised properly by its employer. The plaintiff pleaded other frauds committed by the employee to show a pattern of neglectful supervision by the employer. The allegations about fraud against others were not technically irrelevant, but Pepall J. nonetheless struck them on the basis that the allegations would “greatly expand the breadth, complexity and expense of the litigation in circumstances where corresponding probative value is minimal.” [67]

[74] Pepall J. specifically invoked principles of proportionality in exercising her discretion under s.25.11(a):

Significantly, in my view, rule 1.04(1.1) must also be considered. It provides that “In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved in the proceeding.

I have no hesitation in concluding that on a rule 25.11 motion, the principle of proportionality should inform the balancing of the added complexity and potential prejudice against the potential probative value of the alleged facts…. The language of rule 1.04(1.1) is clear as to the court’s obligation in this regard and its language is not limited in any way. In addition, in my view, it is unnecessarily cumbersome, inefficient and expensive to leave the issue of proportionality to the discovery phase of the litigation as submitted by counsel for the plaintiff.

I agree with these statements and they apply with full force to this case.

[75] Pepall J. also found that that evidence is not required to establish prejudice and delay:

Examination of other customers’ accounts and the massive fraud issues would be a distraction from the main issues in the litigation…. These are the issues truly engaged by this litigation and narrowing the scope serves all of the parties’ interests in obtaining a timely resolution to their dispute. As to evidence of increased complexity and prejudicial effect, it is obvious to me that the scope of the litigation would be expanded greatly were the pleading to stand and evidence of that fact is unnecessary.

[78] It is plain and obvious that the impugned pleading would greatly expand the scope of the litigation and transform the trial into an inquiry into Greenpeace rather than into the allegations of defamation, threats and intimidation that lie at the heart of the claim. The motions judge erred in failing to so conclude, and erred in finding that he needed evidence in order to do so.

[79] In addition, it is plain and obvious that the prejudicial effect and delay that will arise if the impugned pleadings are permitted to stand would grossly outweigh the probative value in respect to the “issues truly engaged by this litigation”.

[30] The Respondent also referred to Howe v. Solart LLL Corp., 2018 ONSC 3169, and, in particular, para. 69:

In Resolute Forest Products Inc. v. 2471256 Canada Inc. (c.o.b. Greenpeace Canada), 2016 ONSC 5398, 113 O.R. (3d) 167 (Div. Ct.). at para. 73, the Divisional Court indicated that even if a pleading contains material facts that have some degree of probative value, the pleading may still be struck if permitting the pleading would “greatly expand the breadth, complexity and expense of the litigation in circumstances where the corresponding probative value is minimal”, citing with approval Javitz v. BMO Nesbitt Burns Inc., 2011 ONSC 1332, 105 O.R. (3d) at para. 25. In Javitz at paras. 27-29, the court invoked the principles of proportionality in r. 1.04(1.1) in exercising the court’s discretion under r. 25.11(1) to strike the pleading.

[31] On the matter of proportionality, the Respondent, again, refers to para. 29 of Canadian National Railway Company and submits that the pleadings set the framework for the trial which follows.

[32] The Respondent submits that, because costs are not part of the issues truly engaged in the litigation, the impugned paragraphs are not relevant. Alternately, even if the impugned paragraphs are not technically irrelevant, allowing them to remain would add complexity to productions, discovery and the trial going forward. Mere relevancy of pleading is not enough, proportionality must also be considered. If the paragraphs are not struck, the process will cover the same ground as the application and involve the revisiting of legal events and findings that are already concluded – for example, the sale of the properties. It will expand the evidence required, for example evidence regarding appraisals. It would require the exchange of all dockets and bills. Effectively, it may require a consideration of the positions taken on every motion. The Respondent argues that the main issue at trial is an accounting, and that costs can be raised in the normal course at the conclusion of the trial. He argues that to leave the pleading as is will create a “complete sideshow.”

[33] The Respondent submits that the Applicant has taken a “scorched earth” approach in his pleading and made serious allegations against the honesty and integrity of the Respondent and his counsel. The Respondent specifically referred to paras. 62, 63 and 66 of the Statement of Defence and Counterclaim and made other references to the impugned paragraphs (last sentence of para. 12 and third sentence of para. 69) where the Respondent alleges the Applicant is trying to cast the Respondent in a bad light.

[34] The Respondent relies on three cases in support of his submission that a pleading will be struck if its only purpose is to cast the opposing party in a bad light. He relies on Canadian National Railway Company, supra, which provides as follows:

[28] A pleading of fact will be struck if it cannot be the basis of a claim or a defence in the action and is designed solely for the purpose of atmosphere: Wilson v. Wilson, [1948] O.J. No. 62 (H.C.J.). If the only purpose of the pleading is to cast the opposing party in a bad light, it will be struck. Pleadings of historical facts, whether those facts are true or not, that have no relevance to the proceeding, will also be struck: see, for example, Davis v. Canada (Attorney General), above; Desjarlais v. Canada, 2002 FCT 973, [2002] F.C.J. No. 1272, 224 F.T.R. 37 (T.D.).

[35] Taylor, supra, makes the same point at para. 28.

[36] In Moody v. Niagara Police Services Board, 2018 ONSC 3079, the court made a similar statement:

[9] The defendant is entitled to plead relevant facts however unpleasant they may be. But a third feature of the statement of claim is a pattern of statements that are argumentative, scandalous or designed only to put the defendants in a bad light. In the table that is appended to my reasons, I use the word “scandalous” to describe any one of these defects. For example, in paragraph 41, “The role of the defendants is not, by law, nor via the Police act and governing legislation, to scare, harass, assault, beat, intimidate, violate, nor abuse the members of the community, most especially the persons within a vulnerable and weakened mental state category.” This is not a statement of fact. Nor does it add anything to the facts of the alleged assault which are pleaded elsewhere. It only adds what the case law calls “atmosphere.”

[37] The Respondent also seeks to strike certain paragraphs of the Statement of Defence and Counterclaim on the basis that the paragraphs are argumentative. Specifically, the Respondent referred to para. 66 and paras. 43-67, which the Respondent submits are essentially the Applicant’s argument for costs. In this regard, the Respondent relies on paras. 25, 29 and 30 of Parker v. Pfizer Canada Inc., 2011 ONSC 5169, which provide as follows:

[25] Pleadings that are irrelevant, argumentative or inserted only for colour, or that constitute bare unfounded allegations should be struck out as scandalous: George v. Harris, [2000] OJ No 1762 (S.C.J.) at para 20; Canadian National Railway Company v. Brant et al. (2009), 96 OR (3d) 734 (S.C.J.); Senechal v. Muskoka (District Municipality), [2003] O.J. No. 885 (S.C.J).

[29] A fact that is not provable at the trial or that is incapable of affecting the outcome is immaterial and ought not to be pleaded. As described by Justice Riddell in Duryea v. Kaufman, (1910) 21 O.L.R. 161 (H.C.J.) at p. 168, such a plea is said to be "embarrassing;" he said: "No pleading can be said to be embarrassing if it alleges only facts which may be proved - the opposite party may be perplexed, astonished, startled, confused, troubled, annoyed, taken aback, and worried by such a pleading - but in a legal sense he cannot be "embarrassed." But no pleading should set out a fact which would not be allowed to be proved - that is embarrassing."

[30] A pleading that raises an issue that can have no effect upon the outcome of the action is embarrassing and may be struck out: Guaranty Trust Co. of Canada v. Public Trustee (1978), 20 O.R. (2d) 247 (H.C.J.); Everdale Place v. Rimmer (1975), 8 O.R. (2d) 641 (H.C.J.); Wood Gundy Inc. v. Financial Trustco Capital Ltd. [1988] O.J. No. 275 (Master); Elder v. City of Kingston, [1953] O.J. No. 48 (H.C.J.).

[38] In Jacobson v. Skurka, 2015 ONSC 1699, Justice Perrell commented on the pleading of evidence or presentation of argument in a pleading as follows:

[43] Rule 25.06 (1) draws a distinction between the “material facts” and “the evidence by which those facts are to be proved.” A material fact may itself be relevant evidence and particulars of material facts may also be relevant evidence, so the distinction drawn in the rule is not a litmus test clear differentiation, but the essence of the directive of rule 25.06 is clear enough that a pleading is not the place for a party to lead relevant evidence and to present argument to prove his claim or defence.

[50] There are some material facts in these paragraphs, but in my opinion, for the most part, these nine paragraphs are evidence and argument about some material facts and some irrelevant matters that need not and ought not to have been included in the Statement of Defence and Counterclaim. For the purposes of Mr. Skurka’s Defence and Counterclaim, the only material facts in paragraphs 42 to 50, below are: (1) that Mr. Skurka met with the U.S. prosecutors and demanded to be told and was told about the nature of the incriminating evidence against Mr. Jacobson personally; (2) that there was incriminating evidence; and (3) that Mr. Skurka was told that a plea bargain for Mr. Jacobson would involve a guilty plea, an agreement to co-operate in the prosecution of others, and only the prospect that with extensive co-operation, there would not be a prison term; visualize:

42. On October 26, 2007, Henein and Skurka met with Weiss at the Department of Justice in Washington, D.C. Weiss provided an overview of the Affpower scheme from the point of view of the Government. He outlined that a number of the offences with which Jacobson was charged were strict liability offences.

43. Weiss advised that two defendants had pleaded guilty and that four more named in the Indictment would plead on November 1 and 2, 2007.

44. Weiss also outlined what the Government was looking for in terms of co-operation. He advised that the Government would want a guilty plea from Jacobson personally.

45. Weiss introduced the outlines of a possible resolution of the charges. He explained that the Government wanted to identify others in the online pharmacy industry who might have engaged in illegal activity and be charged with offences. Jacobson’s co-operation was important for these efforts. His co-operation might assist the Government on other matters as well. If Jacobson were prepared to co-operate extensively with the Government, it was conceivable that he would not have to serve a prison term, a position Weiss had advanced in earlier meetings with U.S. counsel and Skurka. He would be permitted to carry on business. The Government required only that those of Jacobson’s businesses operating schemes like that of Affpower would be required to cease operations.

46. Although the Government had no obligation to make disclosure of its case, Skurka and Henein were concerned that the Government be required to give some indication of the strength of its case. They demanded to be provided with evidence demonstrating that the prosecution had a viable case to present against Jacobson, personally.

47. The Government does not ordinarily provide disclosure to fugitive offenders. Nevertheless, Weiss provided a preview to Skurka and Henein of some critical evidence which the United States Attorney had gathered concerning the activities of Affpower, and Jacobson’s role.

48. On October 30, 2007 at the office of the Department of Justice in Washington, Weiss played critical portions of a recording of a discussion between Jacobson and an indicted co-conspirator David Glass (“Glass”). Glass operated the Affpower plant in Costa Rica, and was co-operating with the Government. Jacobson had been in Costa Rica for a site visit. The recording made it obvious that Jacobson knew that he was participating in an illegal scheme involving the distribution of controlled substances. Jacobson acknowledged in the discussion that prescriptions for consumers were being filled by Affpower without a physician having authorized them. Jacobson admitted to Glass that there was no “real prescription” but perhaps there was a “virtual prescription.” Jacobson reasoned that “Okay, it’s not the greatest but you’ve got back-up. If anything comes into question then the authorities will go after the doctors”. [emphasis added]

49. The recording demonstrated that while Jacobson knew what he was doing was illegal, he took comfort from his position further up the chain that the physicians involved would be the first to face criminal charges and prosecution.

50. Through November 2007, Weiss and Skurka spoke several more times. Weiss provided further evidence from the Government’s case. Weiss advised Skurka that the Government now had evidence to demonstrate that many Affpower “prescriptions” were being prepared and approved not by physicians but by persons impersonating doctors. Weiss also discussed with Skurka the magnitude of the money laundering in which Jacobson was involved.

[39] The Respondent also referred to the impugned paragraphs being scandalous pleadings and referenced para. 25 of Seguin v. Van Dyke, 2011 ONSC 2566.

[40] The Respondent anticipates that the Applicant will argue that the impugned paragraphs are relevant because the Respondent has claimed aggravated, exemplary or punitive damages. The Respondent further anticipates that the Applicant will submit that the impugned paragraphs are responsive to this and relevant in regard to the Respondent not having clean hands.

[41] The Respondent submits that any allegations that he did not have clean hands must be responsive to the allegations/claims made for punitive damages. The Respondent’s claim is based on the allegation that the Applicant breached his fiduciary duties and misappropriated corporate funds and other assets. The impugned paragraphs do not respond directly to this allegation, so the Respondent submits that the Applicant’s pleadings are therefore improper. The Respondent relies on Whiten v. Pilot Insurance Co., 2002 SCC 18, and Grabenheimer v. Lala, 2019 ONSC 2811, to support this position.

[42] In terms of the court’s role on a motion to strike, the Respondent referred to Seguin v. Van Dyke, where the court noted:

[1] This is a motion to strike the statement of defence for failure to comply with the rules of pleading. The plaintiff takes issue with the defence as prolix, repetitive, inflammatory, argumentative and as pleading evidence. I agree that the pleading is improper. I had reserved to consider whether or not it was appropriate to strike only certain paragraphs or sentences. That is often the most efficient way to deal with minor deficiencies but in my view this pleading cannot be saved in that manner. It is not the role of the court to rewrite an offensive pleading.

The Applicant’s Position

[43] The Applicant’s first submission is that the court should take a cautious approach to striking pleadings. While pleadings must not offend the Rules of Civil Procedure, counsel may frame their pleadings as they deem appropriate and this right should not be lightly infringed on by the court. Unless a pleading is embarrassing and prejudicial to a fair trial, this concern should be left for the trial judge. The Applicant relies on paras. 9-13 of Sheppard International Trading v. Baghai, which provides as follows:

[9] The defendants rely on Rules 25.06(1), (2) and (7) and 25.11, which provide as follows:

“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 proved.

(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.

(7) The effect of a document or the purport of a conversation, if material, shall be pleaded as briefly as possible, but the precise words of the document or conversation need not be pleaded unless those words are themselves material.

25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action; (b) is scandalous, frivolous or vexatious; or (c) is an abuse of the process of the court.”

[10] In Somerleigh v. Lakehead Region Conservation Authority, 2005 CarswellOnt 3546 (Ont. S.C.J.) Pierce J. states as follows with respect to the purpose of pleading:

“The purpose of pleadings is three-fold: to define or clarify the issues; to give notice of the case to be met and the remedies sought; and to apprise the court as to what is in issue.”

[11] In Abdi Jama (Litigation Guardian of) v. McDonald’s Restaurants of Canada Ltd., 2001 CarswellOnt 939 (Ont. S.C.J.), Nordheimer J. sets forth the principles to be applied on motion pursuant to Rule 25.11:

“(a) motions under rule 25.11 should only be granted in the “clearest of cases” – see Wernikowski v. Kirkland, Murphy & Ain (1999), 181 D.L.R. (4th) 625 (Ont. C.A.); (b) any fact which can effect the determination of the rights of the parties can be pleaded but the court will not allow facts to be alleged that are immaterial or irrelevant to the issues in the action – see Duryea v. Kaufman (1910), 21 O.L.R. 161 (Ont. Master); (c) portions of a pleading that are irrelevant, argumentative or inserted for colour, or that constitute bare allegations should be struck out as scandalous – see George v. Harris, [2000] O.J. No. 1762 (Ont. S.C.J.); (d) facts may be pleaded but not the evidence by which those facts are to be proved – rule 25.06(1) of the Rules of Civil Procedure; (e) similar facts may be pleaded as long as the added complexity arising from their pleading does not outweigh their potential probative value – see Garwood Financial Ltd. v. Wallace (1997), 35 O.R. (3d) 280 (Ont. Gen. Div.).”

[12] In Bowman v. Rainy River (Town), 2006 CarswellOnt 7449 (Ont. S.C.J.), Shaw J., with reference to Toronto (City) v. British American Oil Co., [1949] O.R. 143 (Ont. C.A.), states as follows:

“While pleadings must not offend against the Rules, it is well established that counsel may frame their pleadings as they deem advisable and this right should not be lightly infringed by the court. The pleading of unnecessary detail or excessive verbosity in a pleading is not of itself a reason for striking out a pleading. It is incumbent upon the party seeking to strike out pleadings to show that he or she is prejudiced or embarrassed by the pleading or that a fair trial will be delayed by the irregularity.”

[13] In General Security Insurance Co. of Canada v. Vasilaros (1984), 46 C.P.C. 247 (Ont. Master), Master Peppiatt cites U.S. Fidelity & Guar. Co. v. Boland, [1957], O.W.N. 237 (Ont. H.C.), wherein the following is stated at p. 238:

“As I read the law, the pleading of unnecessary matter or excessive verbosity in a pleading, while it appears to offend the rules of pleading in England, is not itself a reason for striking out a pleading, according to the law of Ontario. Unnecessary allegations in a pleading are not necessarily embarrassing, and the principle enunciated by Boyd C. in Glass v. Grant (1888), 12 P.R. 480, must be kept in mind, that, - ‘the Judge should be chary in setting aside defences on a summary application, unless the pleading is so plainly frivolous or indefensible as to invite excision.’ Another principle should also be adhered to, - that unless a pleading is embarrassing and prejudicial to a fair trial of the action, it should be left to be dealt with by the trial Judge, and the Court should not dictate to parties how they should frame their case. However, in Knowles v. Roberts (1888), 38 Ch.D. 263, Bowen L.J. at p. 270, observes: ‘It seems to me that the rule that the Court is not to dictate to parties how they should frame their case, is one that ought always to be preserved sacred. But the rule is, of course, subject to this modification and limitation, that the parties must not offend against the rules of pleading which have been laid down by the law; and if a party introduces a pleading which is unnecessary, and it tends to prejudice, embarrass, and delay the trial of the action, it then becomes a pleading which is beyond his right.’”

[44] The Applicant submits that striking pleadings is a drastic remedy (see Leschyna v. CIBC World Market Inc., at para. 16). Orders striking pleadings are rare (Gardner v. Toronto Police Services Board, at para 7.) Striking pleadings is only done in the clearest of cases (Gardner, at para. 10; Lochner v. Toronto Police Services Board, 2013 ONSC 4387, at para. 18; and Moody, at para. 3 (a)).

[45] The Applicant submits that the impugned paragraphs are relevant and responsive to several claims made by the Respondent and do not relate only to costs. First, the Respondent has claimed punitive damages. Punitive damages can be denied where a litigant (who would otherwise be entitled to such damages) comes to court without clean hands (see IT/Net Inc. v. Cameron, at para. 21). The Applicant argues that the impugned paragraphs detail the Respondent’s conduct regarding the sale of the farms and his actions in the court proceedings. The Applicant submits that this is relevant to whether the Respondent has clean hands.

[46] The Applicant also takes the position that the impugned paragraphs are responsive to the Respondent’s pleading. At para. 29 of his Statement of Claim, the Respondent states, “Stan’s financial contributions over time greatly exceeded financial contributions by Paul, who essentially made no contributions after October 2014.” The Applicant submits that the impugned paragraphs respond to this and set out:

• what the Applicant did;
• the steps he took to maximize the proceeds of sale for the farm properties; and
• which efforts were a contribution to the Corporation, as the farm properties were essentially the only corporate assets.

It is the Applicant’s position that these paragraphs detail the material facts relevant to the Applicant’s significant contribution to the Corporation by his taking steps to maximize the sale proceeds of the farm properties, (which belong to the Corporation), in the face of roadblocks erected by the Respondent.

[47] The Applicant also submits that the impugned paragraphs contain material facts responsive to the Respondent’s claim for legal expenses and property appraisal expenses, plus interest thereon – which he claims at para. 7(a) of his Statement of Claim. The Respondent has claimed these expenses, in addition to his costs in the application, mortgage action and consolidated proceeding – all of which he has claimed at para. 7(r) of his Statement of Claim. The Applicant submits that the impugned paragraphs contain material facts in response to this claim. The Applicant asserts that the impugned paragraphs contain material facts demonstrating the Respondent’s resistance to the sale of the farm properties and that this is responsive to para. 7(a) of the Respondent’s Statement of Claim.

[48] The Applicant also submits that these paragraphs contain material facts in response to the Respondent’s claim for an order that all the funds held in court be payable to the Respondent, as set out in para. 7(b) of the Respondent’s Statement of Claim. The impugned paragraphs set out material facts the Applicant relies on, in part, to resist this claim. Simply put, the Applicant seeks to establish at trial that it would be absurd for the Respondent to obtain all of the net proceeds when he vigorously resisted the Applicant’s efforts to get a sale price for the farm properties that exceeded the Respondent’s appraisals. The Applicant submits that the impugned paragraphs provide the material facts – background and context – to paras. 23 and 90 of his Statement of Defence and Counterclaim, which paragraphs are not impugned.

[49] The Applicant also submits that the court is permitted to take into account the manner in which the moving party has pleaded when considering whether to strike the pleading of a responding party. The responding party’s pleading should not be considered in a vacuum.

[50] In assessing the responding party’s pleading, the court must bear in mind both the content and style of the moving party’s pleadings. Where a moving party’s pleading could also offend the strict rules regarding pleadings, the court can afford the responding party more latitude. The Applicant relies on the following passages from TSI International Group Inc. v. Formosa et al., 2016 ONSC 3750, to support that position:

[81] In my view it does. Part of the Plaintiff’s motion is that the language the Defendants have used in their pleading is scandalous or embarrassing. However, when the Plaintiff’s claim is reviewed, there are a number of paragraphs containing a number of very aggressive pleadings that are framed in firm and assertive language. A couple of examples will suffice:

a) In describing the creation of iF2, at paragraph 54 the Plaintiff says “iF2 was clandestinely created to unfairly compete against TSI by illicitly using…” b) In providing a summary of the Plaintiff’s view of the facts, the Plaintiff states (at paragraph 106) that “Formosa and/or Neilsen have also nefariously removed, hidden or destroyed certain TSI documents…. In order to harm TSI and impede justice.”

[82] It is clear from reading the Plaintiff’s claim that it believes it has some significant grievances as a result of the Defendants’ conduct. However, in assessing the Defendants’ pleadings, the Court must be cognizant of both the content and the style of the Plaintiff’s pleadings. A firm and assertive Claim may allow the Defendant more latitude in its choice of language responding to the Claim. Certainly, the Court must be more cautious before striking a pleading out based on a party’s choice of language when the party moving to strike the pleading has also used strong language.

[100] While I view the language of the Defendants’ pleading as being quite aggressive in these paragraphs, I am of the view that I should not strike the impugned sections. I take this view because of the language in the Plaintiff’s own pleading. My decision on this point should not be taken as either implicit or explicit support of any of the other arguments made by the Defendants to support the impugned paragraphs. [Emphasis in original]

[51] In this regard, the Applicant asserts that the Respondent has provided background and context and the Applicant should be granted the same latitude. The Respondent has referenced the historical application and mortgage proceedings and prior court orders numerous times in his Statement of Claim, both by way of background and to cast the Applicant in a bad light. The Applicant references paras. 1-5, 21, 22, 28, 62, 63 and 71 of the Statement of Claim.

[52] Because the Respondent has alleged that the Applicant has engaged in wrongful conduct (ex. subparas. 7(h),(i)(j) and (k) and paras. 76 and 85 of the Statement of Claim), the Applicant submits that similar conduct by the Respondent is relevant for demonstrating that the Respondent does not come to court with clean hands. In the Applicant’s view, the impugned paragraphs also set out the material facts regarding the Respondent’s conduct in resisting the Applicant’s efforts to sell the property. These material facts are not pleaded only to cast the Applicant in a bad light, they are relevant and responsive.

[53] Further, the Applicant alleges that the Respondent has offended the strict rules of pleadings, by pleading admissions) and other evidence at paras. 14, 21, 22, 28 and 41 of his Statement of Claim. Therefore, to the extent the Applicant has included these paragraphs in response, he should be given latitude. The Applicant relies on Parker, para. 33, in support of his submission that a pleading of an admission, which is a type of evidence, may be struck out.

[54] The Applicant also submits that the impugned paragraphs are not scandalous. He references para. 27 of Canadian National Railway, which refers to a quote from Duryea v. Kaufman, [1910] O.J. 118 (Ont. H.C.) stating that “[a]nything which can have any effect at all in determining the rights of the parties can be proved, and consequently can be pleaded…”

[55] The Applicant alleges that the Respondent by bringing this type of motion has engaged in an aggressive, tactical manoeuvre and gamesmanship. The Applicant alleges the Respondent has engaged in “scorched earth” litigation tactics.

[56] In terms of proportionality, the Applicant submits that the impugned paragraphs do not open up any new areas. The paragraphs as set out above, are responsive to issue already raised in the Statement of Claim.

Summary of Respondent’s Position in Reply

[57] The Respondent states that the proceeding is an accounting exercise. Based on the accounting the Respondent has provided, he claims to be entitled to all proceeds of sale on the farm property. Paragraph 90 of the Statement of Defence and Counterclaim is simply argument and not responsive to the accounting. The Respondent has not sought to strike para. 90 but as the Applicant claims the impugned paragraphs provide the material facts behind para. 90, the impugned paragraphs should be struck.

[58] The Respondent states that the legal expenses and appraisal fees claimed in s. 7(a) of the Statement of Claim will be modest and should not be magnified by the impugned paragraphs. If the paragraphs are struck, the Applicant will still have his principal arguments related to the mortgage action – that there was no default and that there was a fatal flaw in the Power of Sale.

[59] The Respondent’s position is that the impugned paragraphs do not contain material facts. The Respondent claims that he has not acted maliciously. He takes the position that there are many more paragraphs of the Statement of Defence and Counterclaim that do not comply with the Rules and he has not sought to strike them. He provides, as examples, that he did not challenge paras. 23 and 90 of the Statement of Defence and Counterclaim.

[60] The Applicant will not be prejudiced if the paragraphs are struck as he can still argue costs at the end of the litigation.

[61] The Respondent submits that for conduct to be relevant to the clean hands concept, it must relate to the allegations giving rise to the punitive damages claim and that they must be proportionate. He submits that conduct during the litigation is not relevant.

[62] The Respondent’s position is that the impugned paragraphs relate to a claim for costs. This is how the Applicant presented it in his Case Conference Brief and, if the paragraphs were meant to be responsive to allegations in the Statement of Claim, they did not need to be as detailed as they are. The Respondent submits that the impugned paragraphs are really submissions or arguments for costs. The Respondent claims that the Applicant’s counsel may have to be a witness if the paragraphs are not struck and counsel’s file may need to be produced.

[63] The Respondent states that para. 71 of the Statement of Claim does not justify the inclusion of historical background in the responding pleading. Paragraph 71 is not simply historical background. To the extent it contains an admission, it is not controversial. The impugned paragraphs are not historical background. They are attacks on the Respondent’s credibility.

[64] The Respondent’s counsel submits pleadings are not sacred; they must be drafted in accordance with the Rules and be proportionate. In the cases the Respondent’s counsel has provided, pleadings have been struck, at least in part.

Analysis

[65] With reference to the caselaw referred to by the Applicant in his submissions, I am mindful that the Court should take a cautious approach to striking pleadings and only do so in the clearest of cases.

[66] For the reasons that follow, it is my view, that the impugned paragraphs should not be struck.

[67] The impugned paragraphs do not relate solely to costs. I am not persuaded that similarities between paragraphs in the Applicant’s Case Conference Brief in reference to costs and the impugned paragraphs disclose impropriety. I must look at the impugned paragraphs in reference to the Statement of Claim. The caselaw relied on by the Respondent is clear that a pleading which is only relevant to costs is not proper. This caselaw is distinguishable from the case before me, however, because the impugned paragraphs in this case are responsive to the Respondent’s claims.

[68] The Respondent, at para. 29 of his Statement of Claim, alleged that the Applicant made no contributions to the Corporation after October 2014. The impugned paragraphs set out the material facts the Applicant relies on regarding his steps to maximize the sale proceeds of the farm property (which belong to the Corporation) and the roadblocks the Applicant alleges the Respondent put in the way of that sale.

[69] Further, the Respondent has claimed legal expenses and property appraisal fees in addition to costs of the proceeding. The Applicant alleges that the impugned paragraphs also respond to this.

[70] In my view, it is possible that these paragraphs are responsive to this aspect of the Statement of Claim. This is not the clearest of cases and the paragraphs should not be struck. The Respondent has said that his claim for legal expenses and appraisal fees will be modest and the impugned paragraphs will magnify this issue. I do not accept this argument. The Respondent’s claim has not been quantified and, in my view, it is premature to say that the Respondent’s claim will be disproportionate to the Applicant’s in this regard.

[71] In my view, the impugned paragraphs do contain material facts to provide context to paras. 23 and 90 of the Statement of Defence and Counterclaim. The Respondent claimed all of the sale proceeds. The impugned paragraphs relate to the material facts the Applicant is relying on, in part, to dispute this claim.

[72] The Respondent has claimed aggravated, exemplary or punitive damages. The Applicant submits that the impugned paragraphs are responsive to this claim and set out the material facts relevant to whether the Respondent has clean hands. Although the Respondent has said in reply submissions that the proceeding is an accounting exercise, by the nature of the Statement of Claim it is much broader. Not only has the Respondent claimed aggravated, exemplary or punitive damages, he has also made several other claims on the basis of the Applicant’s wrongdoing.

[73] With respect to the clean hands issue, the Applicant submits that the Respondent’s allegations must be restricted to the conduct the Applicant is alleged to have engaged in. The Respondent did not provide caselaw support for this proposition; however, I was able to find cases supporting the Respondent’s submissions that the doctrine of clean hands is not for general applications to any misconduct but must be related to the particular transactions/allegations claimed to form the basis of the equitable claim (see Canadian Imperial Bank of Commerce v. Moazami, 2010 ONSC 522, at paras. 15-16; and Canadian National Railway, at paras. 33-35).

[74] The Court of Appeal for Ontario in BMO Nesbitt Burns Inc. v. Wellington West Capital Inc., [2005] O.J. No. 3566 (Ont. C.A.), considered the clean hands defence as it relates to a claim for equitable relief (generally) and as it relates to a claim for punitive damages (specifically). The Defendants had pleaded the recruiting policies, practices and directives of Nesbitt Burns as a defence to Nesbitt Burns’ claim for equitable relief and as a defence to Nesbitt Burns’ claim for punitive damages. The Court of Appeal distinguished between these two defences. With regard to the Plaintiff’s claim for equitable relief and the defence that the Plaintiff did not have clean hands, the Court of Appeal determined that there must be a direct connection between the impugned alleged conduct and the contract to be enforced:

[29] It seems to me that the requirement of a direct connection between the plaintiff’s conduct and the contract to be enforced is sensible. Even at the pleading stage, permitting the defendants to argue a broader connection based on the plaintiff’s general recruiting practices is not justified. And, as I have said, the defendants do not allege any direct connection. In seeking to rely on the clean hands doctrine, they do not allege that Nesbitt Burns breached its contractual obligation to any of the defendants or that it otherwise behaved inequitably towards any defendant. Because the defendants’ pleadings do not come within the scope of the clean hands doctrine set out by this court, I see no error in the motions judge’s ruling on this issue. Therefore, I would not give effect to this ground of appeal.

[75] The Court of Appeal did, however, permit the Defendants to plead the Plaintiff’s conduct in defence to a punitive damages claim. Paras. 30-34 provide as follows:

[30] Nesbitt Burns seeks punitive damages from each of the defendants. The defendants wish to defend the claim for punitive damages by arguing that Nesbitt Burns built its own business by the very same conduct it now describes as "arrogant, high-handed and reprehensible".

[31] The motions judge held that the defendants' general allegations about Nesbitt Burns' recruiting practices had no relevance to the claim for punitive damages. In my view, the motions judge ought to have permitted the defendants to plead the plaintiff's [page170] recruiting practices, policies and directives as a defence to the punitive damages claim.

[32] The typical case where the plaintiff's conduct is relevant to its punitive damages claim is where the conduct led to or caused the misconduct of the defendant -- in other words, where there is a causal connection between the plaintiff's conduct and the defendant's conduct. For example, in the case of assault, any provocation by the plaintiff will usually diminish the impropriety of the defendant's reaction. See for example T.L.C. v. Vancouver (City), [1995] B.C.J. No. 2317, [1996] 2 W.W.R. 529 (S.C.), at paras. 95-96.

[33] This, however, is not the typical case. The defendants do not allege that Nesbitt Burns' conduct in recruiting others caused the wrong doing on which the plaintiff relies. Nonetheless, I think the defendants should be able to argue that the conduct of which Nesbitt Burns now complains does not attract the kind of outrage associated with punitive damages because it is widely accepted in the industry and indeed has been employed by the plaintiff in its own recruitment of investment advisors. In Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, [1995] S.C.J. No. 64, at p. 1208 S.C.R., Cory J. pointed out that an award of punitive damages "is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant". Here the defendants contend that any outrage at their conduct will be diminished because the plaintiff itself has engaged in the very same conduct. It is not plain and obvious that this argument cannot succeed.

[34] I appreciate that allowing the defendants' appeal on this issue may expand the discovery to which Nesbitt Burns is subjected. As they did in respect of the clean hands defence, the defendants seek to plead and prove not just the recruiting practices and policies of Nesbitt Burns that they knew of while employed there, but recruiting practices and policies they have become aware of from others. On my holding, they are entitled to do so in defending the punitive damages claim. Having asserted this claim, the plaintiff cannot escape relevant questioning about its recruiting practices. The requirement for particulars will put manageable limits on the production and discovery process. I would allow the defendants' appeal on this issue. [Emphasis added]

[76] In the case before me, as I understand it, the Applicant wants the ability to defend against the punitive damages claim – which is based on an alleged misappropriation of Corporate funds – by asserting that the Respondent acted in a manner that was detrimental to the Corporation. These detrimental actions relate to the sale of the farm property, which would have diminished the Corporation’s assets. On the basis of BMO v. Nesbitt Burns Inc., it is not plain and obvious that this argument cannot succeed.

[77] Further, although the Respondent states that his claim for punitive damages is related to alleged misappropriations by the Applicant, it is not clear from the Statement of Claim exactly which “transaction” his claim for punitive damages arises from. It appears to be tied to the parties’ overall interactions and not limited to one transaction. At para. 68 of the Statement of Claim, the Respondent refers to “Paul’s appropriation of corporate funds and other assets.” The allegation is that the Respondent breached a fiduciary duty by improperly commingling assets and skimming off the top of the Corporation. It is not clear, however, that the Respondent’s claim for punitive damages is limited to only to the allegations in this section of his Statement of Claim.

[78] On the basis of Javitz and Resolute Forest Products Inc., the Respondent submits that these paragraphs should be struck, even if they are relevant. Allowing them to remain, in the Respondent’s view, would create a disproportional complexity to the proceedings.

[79] The added complexity, expense and potential prejudice of allowing the pleading to stand must be balanced against the potential probative value of what has been pleaded. On my balancing of these factors, I do not find that the impugned paragraphs should be struck.

[80] The impugned paragraphs are not peripherally relevant. Their probative value is not minimal. They are responsive to a number of the Respondent’s claims. The paragraphs do not expand the complexity in any disproportional manner. That door has already been opened by the Respondent; he has made a specific claim that the Applicant did not contribute to the Corporation. The Applicant is entitled to respond to this, which includes the ability to plead contributions he made during the sale process, as well as relevant facts which could rebut the Respondent’s allegations he submits should entitle him to punitive damages. The Respondent claimed his own legal expenses and appraisal fees. The Applicant is entitled to respond and plead material facts as to why the Respondent should not be entitled to same. I am not satisfied that the impugned paragraphs add to the complexity. The Statement of Claim was complex and not simply indicative of an accounting exercise. The probative value of the impugned paragraphs is significant and the potential prejudice to Respondent minimal, especially given his own pleading and the nature of his claims.

[81] Javitz and Resolute Forests Product Inc., are distinguishable from the case before me.

[82] In Javitz, maintaining the pleading would have meant discovery of the massive fraud including other customer accounts that would have required an examination of the circumstances of each fraud and what the Defendant knew about each. It would have involved disclosure of detailed confidential financial information of other customers.

[83] In Resolute Forests Products Inc., the impugned pleading would have transformed the trial into an inquiry about Greenpeace and added “two dozen factual issues, unrelated to the principal issues in the case, involving numerous ill-identified parties, many apparently outside Canada…” (at para. 59). In the case before me, the impugned paragraphs relate only to the Respondent and the Applicant. There are no other or outside parties. Refusing to strike these paragraphs will not add to the complexity to the proceeding in the manner that concerned the courts in Javitz or Resolute Forest Products Inc..

[84] The Respondent has submitted that the impugned paragraphs are only meant to cast the Respondent in a bad light. I disagree. The impugned paragraphs are relevant to the issues outlined above. Further, the Respondent has included paragraphs in his Statement of Claim that cast the Applicant in a bad light (paras. 1-5, 21, 22, 28, 62-63 and 71). The manner in which the Respondent has plead is a consideration (see TSI International Group Inc.).

[85] In my view, the impugned paragraphs are not solely relevant to costs. The paragraphs are responsive to claims made by the Respondent. The impugned paragraphs are not scandalous. The Respondent has alleged the Applicant’s wrongdoing, and the Applicant has responded by setting out the Respondent’s wrongdoings, which may be relevant to the Applicant’s claims.

[86] I have reviewed the Statement of Claim and Statement of Defence and Counterclaim. I do not see any stark contrast in the way they have been pleaded. Both contain evidence going beyond material facts; for example, see paras. 23, 34-37 and 41 of the Statement of Claim and paras. 53-60 of the Statement of Defence and Counterclaim. Both have some argument; for example, see paras. 27-28, 45 and 49 of the Statement of Claim and paras 51, 59 and 62-63 of the Statement of Defence and Counterclaim. Neither pleading confirms entirely to the Rules of Civil Procedure. To strike the impugned paragraphs would be to hold the Applicant to a higher standard than the Respondent.

Conclusion:

[87] The Respondent’s motion is dismissed. The Respondent shall have 20 days from today to serve and file his Reply and Defence to Counterclaim.

Costs:

[88] The parties are encouraged to resolve the issue of costs. If the are unable to, the Applicant shall deliver written costs submissions (limited to three pages with a bill of costs attached) within 30 days of today. The Respondent shall deliver written cost submissions in response (limited to three pages) within 60 days of today. The Applicant shall deliver any written reply submissions (limited to one page) within 75 days of today.

Coats J. Date: March 10, 2020