Court File and Parties
Court File No.: CV-19-00620982-0000 Motion Heard: January 16, 2020 Date of Decision: January 17, 2020
Superior Court of Justice - Ontario
Re: NSR Toronto Holdings Ltd., Plaintiff And: CIM Development (Markham) LP, et al., Defendant
Before: Master J. Josefo
Counsel: K. Surko, for the Plaintiff, Defendant by Counterclaim, Moving Party R. Quance, for the Defendants, Plaintiffs by Counterclaim, Responding Parties H. Borlack, for the new owner of five of the purportedly Counterclaiming Parties (Sunny Development Holdings Inc.) (very limited role)
Endorsement
The Issues—how arising:
[1] The dispute between the parties arises out of a failed commercial Real Estate transaction involving a mixed residential and commercial development known as the “Mackenzie Creek Project”. Unfortunately, many entities are involved in this failed transaction, the details about which I need not address for purpose of the narrow issue to be decided on this motion.
[2] Plaintiff, defendant by counterclaim (hereinafter, “plaintiff”), made a demand for particulars. Such was not answered. On November 26, 2019 my colleague Master Muir granted an adjournment sought by the defendants, plaintiffs by counterclaim (hereinafter, “defendants”), on certain terms, including that the defendants deliver their response to the demand for particulars by December 3, 2019. It was also determined that the matter be returned on January 16, 2020.
[3] As scheduled, the motion returned, before me, on January 16, 2020. Two issues were to be addressed, as follows:
- the sufficiency of the response to the demand for particulars. Happily, on this issue, the parties agreed upon terms of a consent Order, which I signed.
- whether the counterclaim, purportedly commenced by, inter alia, five parties at one time claimed to be controlled by the plaintiff, and subsequently, as of November 29, 2019, controlled by Sunny Development Holdings Inc (“Sunny”), which purchased these five entities from plaintiff, should be stayed or dismissed, only as for those five parties listed above, pursuant to Rule 15.02(4) of the Rules of Civil Procedure.
[4] It was only this second issue which was in dispute, and upon which counsel made helpful submissions in addition to their written materials.
The Position of the Parties:
[5] It was in essence the position of the plaintiff that the five listed counterclaiming defendants were originally under control of the plaintiff, subsequently sold to Sunny, and none of them authorized the commencement of a counterclaim by them. Pursuant to Rule 15.02(4), the counterclaims brought in the name of these five entities should be stayed or dismissed, with costs.
[6] Defendant submitted that Rule 15.02 does not apply to a counterclaim. Rather, it only applies to a claim, meaning to an “originating process”, as that phrase is defined in the Rules. It was submitted that the plaintiff did not even have the ability, pursuant to the Rule, to request that counsel opposite confirm if the client authorized the commencement of the counterclaim.
[7] It was also noted by defendant that the October 11, 2019 letter by counsel for plaintiff addressed to (former) counsel for defendants and counter-claimants acknowledged that the above-named five entities were “added as defendants to the main action only as necessary parties”. If the parties were thus admitted to be “necessary”, Mr. Quance submitted, then, pursuant to Rule 5.03(5) of the Rules of Civil Procedure, these parties must remain in place.
[8] Mr. Borlack, for Sunny, the non-party to this litigation now controlling the five above-listed entities, simply submitted that Sunny does not authorize the continuation of the counterclaim. Mr. Quance took no objection to that submission being made. Mr. Borlack then retired from the courtroom.
Discussion:
[9] The underpinning and quite narrow question, it was agreed by counsel, was whether Rule 15.02(4) applies to a counterclaim, or is only limited to a statement of claim (or, I would add, one of the other defined types of “originating process” as set out in Rule 1.03, as discussed herein).
[10] Both counsel acknowledged there was not much case-law on this point. Greta Energy v. Veresen Energy Infrastructure Inc, 2019 ONSC 2826 I find mainly turns on the interpretation of section seven of the Arbitration Act, not on the Rules of Civil Procedure. Moreover, that decision did not specifically address, in footnote 6, the definition of an “action”. Rather, the focus was on “originating process” and “proceeding”. Thus, I need not further consider this decision, which focused on its own facts and legal issues.
[11] Similarly, I view Windsor v. Mako as in the main addressing issues arising out of examinations for discovery and whether certain questions were properly refused. The comments pertaining to Rule 15.02(4) are somewhat ambiguous, understandably, as these were made in obiter.
[12] Accordingly, I find it best to begin and likely end with the plain wording of the relevant Rules. I offer my analysis on that basis.
[13] Rule 15.02(1) of the Rules of Civil Procedure provides as follows:
A person who is served with an originating process may deliver a request that the lawyer who is named in the originating process as the lawyer for the plaintiff or applicant deliver a notice declaring whether he or she commenced or authorized the commencement of the proceeding or whether his or her client authorized the commencement of the proceeding [emphasis added].
[14] The following Rules 15.02 (2) and (3) set out the sanctions where a lawyer in receipt of such a request fails to deliver the responding notice, and if the lawyer commenced process absent authority to do so, and what the court may then order in response.
[15] Rule 15.02(4) I find goes beyond Rule 15.02(1). Rule 15.02(4) provides for what happens not just when an “originating process” is served. Rather, this Rule, in my view, has a broader application, including applying to a “proceeding”. This is more than being restricted or limited to only an “originating process” being commenced absent authority to do so, as is addressed by Rule 15.02(1).
[16] Flowing from the above, a “Proceeding” is beyond an originating process. “Proceeding” is defined in Rule 1.03 of the Rules of Civil Procedure as “an action or application”. Rule 1.03 broadly defines an “action” as follows:
“action” means a proceeding that is not an application and includes a proceeding commenced by,
a) a statement of claim, b) notice of action c) counterclaim d) crossclaim, or e) third or subsequent party claims [emphasis added].
[17] Accordingly, a counterclaim is a “proceeding”, which is covered within Rule 15.02(4). By contrast, the definition of “originating process” is “a document whose issuing commences a proceeding under these rules”. A counterclaim is specifically excluded from the definition of “originating process”, as also are a crossclaim or notice of motion.
[18] Again, it is my view that the definition of “Proceeding” is broader than that of an “originating process”. I further conclude that the framers of the Rules deliberately made a choice when using these differently defined words, at different places in Rule 15.
[19] Returning to Rule 15.02(4), it provides as follows:
If a lawyer has commenced a proceeding without the authority of his or her client, the court may, on motion, stay or dismiss the proceeding and order the lawyer to pay the costs of the proceeding [emphasis added].
[20] Based on the plain definitions in and reading of the Rules, a person served with a counterclaim has been served with a “proceeding” which must have been commenced, for the rule to be operative, by a lawyer (as has occurred in the case before me; the issue of self-representation in this matter does not arise). The person served with a counterclaim arguably may not request a lawyer to deliver the requisite notice described in Rule 15.02(1). I need not decide that even narrower point as nothing turns on it for this case. Yet the court by way of motion may still grant the relief provided for in Rule 15.02(4) if a lawyer is found to have commenced a proceeding (which again includes a counterclaim) without the authority of his or her client. Again, subsumed within the definition of “proceeding” is an “action”, which is defined as including, inter alia, a “counterclaim”.
[21] The issue then arguably arises: who is the “client”? Can a defendant authorize a counterclaim in all cases, even when the defending party does not control all of the other (nominal) defendants (or, “necessary parties”, as these are defined and discussed ahead)?
[22] In the vast majority of cases, these questions will not arise. If a party defending a lawsuit wishes to also assert a counterclaim, usually, that happens without controversy. Yet to allow, in the likely rare cases as is this one, a lawyer to launch a counterclaim when doing so is against the wishes of certain of the parties, is in my view contrary to the overall intent set out in the Rules, referencing, in particular, Rule 1.04 of the Rules of Civil Procedure. That Rule is also discussed further ahead.
[23] To not read the Rule in that liberal fashion in my view could lead to potentially absurd results. This case is a good example. Herein we have five parties added as defendants only because, pursuant to an October 11, 2019 letter of counsel for plaintiff, these were asserted to be “necessary” to the action. The defendant in this case did not dispute the adding of such necessary parties.
[24] Rule 5.03 of the Rules of Civil Procedure specifically addresses adding necessary parties. Rule 5.03(5) even provides that parties deemed “necessary” may be added against their will. Yet that Rule does not provide that such parties added absent their consent can be added as plaintiffs or counterclaimants. Rather, pursuant to Rule 5.03(5), such parties can only be added as either a defendant or respondent.
[25] To force such a party added absent consent to become a plaintiff, which is essentially what a counterclaimant is, is I find not what the Rules provide, nor a result which the Rules could have intended. To compel a person to be exposed to costs and forced to prosecute a claim when such person is opposed to doing so, is I believe, the antithesis of Rule 1.04.
[26] Rule 1.04, after all, urges a liberal construction of these Rules “to secure the just, most expeditious, and least expensive” determination of a civil dispute. In that regard, compelling a defendant not disputed to be necessary to an action pursuant to Rule 5.03, to also become a claimant when the parties who control such a defendant emphatically do not agree, is contrary to the intent of Rule 1.04.
[27] In this case, both the plaintiff which previously controlled the five counterclaiming entities, and Sunny, which now controls those entities, did not authorize a counterclaim. Such fact was not disputed by Mr. Quance. To compel these entities to continue anyway as counterclaimants, against their will, or to not find a remedy but to foist such an obligation on these unwilling parties, again in my view is contrary to Rule 1.04, as well as to the intention generally of the Rules.
[28] Yet I need not reach for this more general intention or only rely on Rule 1.04. As reviewed above, pursuant to the definitions in Rules 1.03 and 15.02, a counterclaim is included in the definition of an “action”, which is a “proceeding”. Rule 15.02(4) thus governs a proceeding being commenced absent authority. In this case, applying Rule 15.02 (4), I may stay or dismiss this proceeding (the counterclaim) ostensibly commenced by (actually commenced in the name of) the five named entities.
[29] As the undisputed facts inform me that there was no authority for counsel for the defendants to commence or to continue the counterclaims for those five entities, these are, for those five named entities only, stayed.
Costs:
[30] It was agreed that costs could be addressed subsequent to my issuing these reasons for decision. Hopefully the parties can come to some satisfactory solution on costs, at the same time as when they agree upon a formal Order to reflect this endorsement.
[31] Yet if the parties are unable to agree on costs, a tele-conference or an in-person case conference may be arranged by contacting my ATC Ms. C. Alevizos. If the parties are desirous of proving written submissions in advance of any such telephonic or in-person attendance, they may do so. Other than the Costs Outline/Bill of Costs, each party may submit up to three normally spaced pages.
Master J. Josefo Date: January 17, 2020