Algoma Steel Inc. v. Capitol Steel Corporation and Looby Construction Limited

COURT FILE NO.: CV-20-28

DATE: 2021-04-21

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF the Construction Act, R.S.O. 1990, c. C.30, as amended

BETWEEN:

ALGOMA STEEL INC. Plaintiff

– and –

CAPITOL STEEL CORPORATION and LOOBY CONSTRUCTION LIMITED Defendants

COUNSEL: Brad Halfin, for the Plaintiff Timothy McGurrin, for the Defendant Capitol Steel Corporation

HEARD: February 18, 2021 by videoconference

BEFORE: T. A. HEENEY J.

REASONS FOR JUDGMENT ON A MOTION

[1] This is a motion by the plaintiff Algoma Steel Inc. (“Algoma”) to strike certain portions of the Statement of Defence and Counterclaim of the defendant Capitol Steel Corporation (“CSC”). CSC brought a cross-motion to amend its pleading in the event that the subparagraphs in question were struck. The defendant Looby Construction Limited is not involved in the motion or cross-motion and did not participate.

[2] I should deal at the outset with a preliminary procedural issue. Algoma sought leave of the court to bring their motion, as required by s. 13 of O. Reg. 302/18 under the Construction Act, which provides that interlocutory steps, other than those provided under the Act, shall not be taken without consent of the court, on proof that such steps are necessary or would expedite the resolution of the issues in dispute. I am satisfied that the motion is necessary, in order that any doubt about the propriety of the pleadings can be resolved at this early stage. This will help to expedite subsequent proceedings such as discoveries, since the scope of discoveries is defined by the pleadings. Accordingly, leave is granted to bring this motion.

[3] Algoma complains, though, that CSC did not seek similar relief in its cross-motion to amend, such that the cross-motion is not properly before the court. I am not convinced that this is actually required, since CSC did not initiate the interlocutory motion, it is simply responding. Once a motion to strike is before the court, it is open to the court, if a pleading is struck, to grant leave to the responding party to amend in order to cure the defect. CSC did seek leave to amend in their Notice of Motion. If they are also required to seek leave to bring their cross-motion at all, I am satisfied that it should be granted, under subparagraph (f) of their Notice of Motion, which asks for such “further and other relief as this Honourable Court may deem just”, for the same reasons that apply to Algoma’s motion.

The Pleadings:

[4] Before reviewing the facts, I will set out the pleadings which are in question, which will assist in understanding the relevance of the facts to the issues on these motions. In brief, Algoma argues that subparagraph 13(g) of CSC’s Statement of Defence and Counterclaim pleads facts that are protected by settlement privilege. The subparagraph under attack reads as follows:

13(g) On or about March 20, 2020, however, Algoma acknowledged and admitted that it would be required to re-roll the Structural Steel Plate again. Its proposal was not acceptable as:

(i) The time anticipated for doing so by Algoma would result in serious Project delay and expose CSC to significant damages;

(ii) Notwithstanding previous attempts to re-roll the Structural Steel Plate, the product continued to exhibit Deficiencies. As such, it could not be reasonably anticipated that Algoma was capable of producing compliant product; and

(iii) Algoma required that CSC execute a release of all claims arising from the late and defective supply of the Structural Steel Plate.

[5] Algoma argues that this subparagraph refers to a proposal of settlement made by Algoma in an effort to settle the dispute between the parties, which was made through a series of discussions and emails in March and April, 2020, and which communications are protected by settlement privilege. Accordingly, Algoma argues that this portion of the pleading should be struck without leave to amend, pursuant to Rule 25.11 of the Rules of Civil Procedure, as being scandalous, vexatious and an abuse of the process of the court.

[6] In addition, Algoma claims (in its Factum but not in its Notice of Motion) a declaration that the allegedly privileged communications are inadmissible in this proceeding.

[7] CSC denies that its pleading is offensive, and states that the discussions and emails were not settlement discussions to resolve any dispute between the parties, but instead represented efforts to deal with the quality problems they had discovered with the steel and achieve performance of an ongoing contract, while minimizing exposure for both parties to damages and penalties arising from the delay. In the alternative, though, it proposes that if its initial pleading were found to be defective, the problem could be cured by amending it as follows:

13 (g) In March 2020, or by no later than about April 20, 2020, Algoma knew or ought reasonably to have known that its supply of steel remained deficient and that:

i. the ongoing delays in Algoma supplying steel to the required standards had resulted in and could continue to result in serious Project delay and exposure to significant damages;

ii. notwithstanding previous attempts to re-roll the Structural Steel Plate, the product continued to exhibit deficiencies, and that as such, Capitol Steel could not reasonably anticipate that Algoma was capable of producing compliant product; and

iii. as time was of the essence and delay and damages accruing, CSC could neither wait on Algoma to attempt further mitigation nor agree to an amendment of Algoma’s purported contractual limitations in exchange for delivery of the contractually mandated compliant steel.

The Facts:

[8] Algoma is, among other things, a supplier of steel. CSC is a fabricator and erector for structural steel projects. Both companies became involved in two construction projects, one of which involved replacement of a highway bridge in Bayfield, ON, and the other involving construction of a bridge on Highway 15 in Alberta. CSC issued purchase orders to Algoma on both projects in the summer and fall of 2019.

[9] After the materials were delivered by Algoma, CSC alleged that they did not conform to the requirements of the subcontracts, and refused to pay for them. Algoma denied that the materials were defective, but agreed to manufacture and deliver a second set of material for the Bayfield project, subject to CSC returning the original set of materials.

[10] After the second set was delivered, CSC alleged that they did not conform to the requirements of the subcontract either. They refused to pay for the materials, and refused to return the original set.

[11] The evidence is in conflict as to the nature of the telephone calls and emails that were exchanged. I should mention at this point that none of the affidavits filed have been tested by cross-examinations, the parties have not exchanged Affidavits of Documents and no examinations for discovery have yet taken place.

[12] Algoma filed no affidavit with its Motion Record, so the first party to do so was CSC, in its responding record. Aaron London is commercial director and general counsel for CSC. In his affidavit sworn January 8, 2021, he states that he had a telephone discussion with Algoma’s controller, Aaron Evans, on March 9, 2020, who confirmed that he was aware of the concerns with the steel supplied by Algoma, and the potential of liquidated damages and delay penalties. This was followed by a further call with both Mr. Evans and the president of CSC in which the deficiencies in the supplied steel were again discussed as well as the need to resolve the problem, particularly in light of the fact there would be damages and delay costs. He attested that the point of the call was not to settle any dispute or claims, but was instead “to find a path forward to complete the project work and limit and mitigate current and future damages and penalties that both parties would face.” Mr. Evans confirmed that he would take this up with his quality control people.

[13] A further call occurred on March 11, 2020, where CSC requested and Algoma agreed to send their metallurgical experts to Winnipeg to conduct a quality inspection. This happened on March 13, where allegedly defective plate steel was inspected, along with girders which had incorporated the allegedly defective steel. Further discussions happened the same day, which again, in Mr. London’s view, were not “settlement discussions” but were instead intended to discuss defects, consider the risk of damage claims to both parties and find ways to complete their contractual responsibilities ̶ in other words, “to finish the job”. Mr. London testified that to the best of his recollection, during none of these calls was it specified that these discussions “were to be without prejudice on account of being settlement discussions.” Indeed, it would have been premature to discuss settlement because damages would not be crystalized until both projects were delivered to their clients.

[14] On March 18 to 20, a string of emails was exchanged between Mr. London and John Naccarato, VP-Strategy and Interim General Counsel for Algoma. Mr. London attested that this is the first time Mr. Naccarato injected the word “Privileged” in the subject line. He believed that the communication may have been privileged in the sense of being “common-interest privileged”, as both companies were looking for a way to comply with their obligations and mitigate risk of non-performance and claims by other parties.

[15] The emails related, initially, to CSC’s need to get a conformance letter from Algoma. In an email dated March 19, Jeff Ganczar, president of CSC, outlined the defects over the majority of the plate that were evident after the plates were “wheelabrated”. He wanted to know if Algoma will immediately “re-roll” all of the remaining plates that had not yet been incorporated into girders, without having a full inspection of those plates, so that they could resume fabrication and minimize damages. In Mr. Naccarato’s reply of March 20, he committed to re-rolling the remaining plates provided that CSC agreed to release the rejected plates for pickup by Algoma.

[16] On April 8, 2020, Mr. London and Mr. Ganczar had a telephone discussion with Mr. Evans. Mr. London attests he was advised that Algoma had discovered the root cause of their deficient supplies, and would re-roll and wheelabrate future plates for these projects at their facility to ensure that their further supply was not defective.

[17] On April 15, 2020, Mr. Naccarato sent an email to Mr. London, entitled “Privileged and Provided Solely for Settlement Purposes”, enclosing a “draft settlement agreement” for his review. He closed his email with this comment: “The agreement is subject to confirmation of plates inventory and further refinement, but I suggest it’s a reasonable path forward to resolve our issues.” The draft agreement itself was not put into evidence.

[18] According to Mr. London, this was the first communication from Algoma that might arguably be said to have made settlement of potential claims a significant concern, as compared to all previous communications which had the primary purpose of discussing and resolving deficiencies in the steel so as to permit them to complete their project work and fulfill their contractual responsibilities.

[19] In this communication, Mr Naccarato introduced the idea of Algoma requiring a release before it would complete its contractual duty to provide compliant steel. Mr. London attested that it was not commercially reasonable for CSC to contemplate such a settlement, because significant costs were still accruing and damages had not yet crystallized.

[20] Algoma filed the affidavit of their Controller and General Manager of Information Technology, Aaron Evans, sworn January 21, 2021, in reply. He states that the teleconferences referred to in Mr. London’s affidavit also included discussions on payment of the amounts due to Algoma. He also attested that upon the start of every teleconference in which he participated with Mr. Naccarato, he specifically recalled that all parties agreed that the discussions were expressly stated as being “for settlement purposes”, “without prejudice” and/or “privileged”, otherwise they would not participate in the call.

[21] As to the April 8 telephone call, he confirmed that it did take place, but states that it was a follow-up discussion to the without prejudice settlement discussions that were ongoing between the parties to resolve the dual issues of Algoma’s outstanding accounts and the issues CSC was asserting regarding Algoma’s materials. He states that it was a follow-up to a call on April 7, with respect to which Mr. London had prepared Minutes. A copy of those Minutes is attached to his affidavit, all of which has been redacted except the first item, which reads “1. Confirmation that the call is Without Prejudice.”

[22] On or about April 24, 2020, CSC purported to terminate the subcontracts with Algoma, on the basis that Algoma never completed its contractual duty to supply compliant steel. It has refused to pay for the materials supplied by Algoma, or to return them. A Claim for Lien was delivered by Algoma regarding the Bayfield project on May 20, and the Statement of Claim was issued on July 9. Separate proceedings are underway in Alberta relating to the Highway 15 project.

The Law and Analysis:

[23] Rule 25.11 provides as follows:

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.

[24] The decision of the Ontario Court of Appeal in F. (M.) v. s. (N.), 2000 CanLII 5761 (ON CA), [2000] O.J. No. 2522 (C.A.) is instructive as to how the court should approach a motion under this rule. A patient made a written complaint to the College of Physicians and Surgeons alleging that her family doctor had sexually abused her. She also brought a civil action against the doctor, which was settled on the basis that he would pay her a series of payments totalling $500,000 over time. After the settlement document was signed, the patient signed a sworn statement recanting her allegations of sexual abuse. The doctor subsequently stopped making payments, and the patient sued to enforce the settlement.

[25] In his Statement of Defence and Counterclaim, the doctor specifically pleaded the sworn statement which recanted the patient’s allegations. However, this pleading was struck out on a motion under Rule 21.01(1)(b), because s. 36(3) of the Regulated Health Professions Act provides that “no report, document or thing prepared for or statement given at such a proceeding … is admissible in a civil proceeding…”. The Divisional Court dismissed an appeal of that order, and a further appeal to the Ontario Court of Appeal was dismissed by a majority decision.

[26] Laskin J.A. (Osborne A.C.J.O. concurring) held that the pleading was properly struck, although it should have been struck under Rule 25.11 and not Rule 21.01. He held that the plain meaning of s. 36(3) was clear. As the challenged paragraphs of the doctor’s pleading referred to the complaint and subsequent recantation, both of which were documents prepared for the College discipline proceeding and were therefore inadmissible in the civil proceeding, the motions judge was correct in striking out the paragraphs. He said this, at para. 43:

Rule 25.11 permits the court to strike out any part of a pleading that may prejudice or delay the fair trial of an action. A pleading of documents that are inadmissible at trial will prejudice or delay the fair trial of the action. The pleading is irrelevant to the action. Therefore the impugned paragraphs in Dr. S.’s statement of defence and counterclaim should have been struck out under Rule 25.11. In this case nothing turns on which rule was used to decide the motion. I would therefore not interfere with the decision of the motions judge or the decision of the Divisional Court.

[27] Borins J.A., in dissent, would have held that the pleading was unobjectionable. While it was a dissenting opinion, his reasons are nevertheless helpful for his review of the applicable law regarding the striking of pleadings. He said this, at para. 71:

At a time before the term “embarrassing” had been replaced in the Rules of Civil Procedure by “scandalous,” Riddell J. provided what has become the classic test in applying rule 25.11(b). In Duryea v. Kaufman (1910), 21 O.L.R. 161 (Ont. Master) at 168 he stated:

No pleading can be said to be embarrassing if it allege 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 the 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. ... Even if a pleading set out a fact that is not necessary to be proved, still, if it can be proved, the pleading will not be embarrassing. Anything which can have any effect at all in determining the rights of the parties can be proved, and consequently can be pleaded — but the Court will not allow any fact to be alleged which is wholly immaterial and can have no effect upon the result.

[28] As to the general approach to be taken on motions to strike, he said the following, at para. 81:

The caution against exercising the power to strike out pleadings except in the clearest of cases expressed seventy-five years ago by Meredith C.J.C.P. in Sentinel-Review Co. v. Robinson (1927), 1926 CanLII 335 (ON SC), 60 O.L.R. 93 (Ont. Master), at 97 [1927] (Ont. Master) is as valid now as it was then: “There is always some danger of a pruner cutting off a fruitful bough mistaking it for an unfruitful one.”

[29] He went on to quote further from the same decision at paras. 82-3:

Furthermore, to uphold the decision of the Divisional Court would create a dangerous precedent. The result of the decision is that whenever a party holds the belief that the evidence on which an opposing party may rely to prove a fact that he or she has pleaded may be inadmissible, that party can bring an interlocutory motion at the pleading stage, totally out of context with the evidence before the trial judge, to obtain a ruling on the admissibility of the evidence. This would enable a party, in the guise of a pleading motion, to obtain a ruling from a master, or a motions judge, that encroaches upon the traditional role of the trial judge.

Should additional support for this view be required, I would refer, once again, to Sentinel-Review Co. v. Robinson, supra. In that case, Meredith C.J.C.P. reversed the order of the Master who had struck out certain paragraphs of a statement of defence in a libel action as embarrassing on the ground that the defendant would be unable to adduce certain evidence to prove the facts. Meredith C.J.C.P. had this to say at p. 98:

It is a matter for the Judge at the trial to determine whether, as a defence to the action, or in mitigation of damages, the facts set out in the words struck out of the statement of defence are admissible in evidence at the trial of the action; and care should be taken that his rights and duties should not be interfered with; and it may be that he shall consider them as part of the surrounding circumstances that may be adduced in cross-examination or in chief, apart from mitigation. .... It should be out of the question tying, or attempting to tie, the trial Judge’s hands, in that or in any other way, by an officer or Judge at chambers, and the more so without any allegation of embarrassment or suggestion of prejudice in leaving all matters to be dealt with at the trial.

[30] Care must be taken in relying on the reasons of Borins J.A. since they were in dissent. However, the area of disagreement with the majority does not appear to be on the applicable law, but rather on his view that the appeal court inappropriately assumed the role of a trial judge in determining the admissibility of relevant evidence. In his opinion, the appeal court’s finding that the patient’s affidavit was prepared for the purpose of a disciplinary proceeding was the foundation for its conclusion that the affidavit would be inadmissible at the trial of the action. That finding of fact was made in the absence of any evidence.

[31] Laskin J.A., in his majority reasons, had no difficulty concluding that the document which recanted the allegations was prepared for purposes of the disciplinary proceedings. It was part of a “package deal”, where the patient agreed to the settlement and the doctor agreed to pay the $500,000, provided that she signed the recantation, thereby avoiding further prosecution of the doctor by the College, or at least enabling him to use the recantation in his defence in the disciplinary proceedings. He found at para. 22 that “[t]he inescapable conclusion is that Ms. F.’s recantation is a document prepared for a proceeding under the Medicine Act.” Since the wording of s. 36(3) was perfectly clear, the document was inadmissible.

[32] As to the argument that the decision as to admissibility of the document should have been left to the trial judge, Laskin J.A. said this, at para. 40:

Dr. S. contends that regardless of how s. 36(3) is interpreted the admissibility of documents is a matter for the trial judge and therefore the challenged parts of his pleading should not have been struck out on a motion. I disagree. If a paragraph in a party’s pleading pleads facts that cannot be proved at trial or pleads documents that cannot be admitted at trial, that paragraph may be struck out on a motion. As Aylseworth J.A. said speaking for this court in Roman Corp. v. Hudson’s Bay Oil & Gas Co. (1971), 1971 CanLII 44 (ON CA), [1972] 1 O.R. 444 (Ont. C.A.) at 446, aff’d 1973 CanLII 15 (SCC), [1973] S.C.R. 820 (S.C.C.):

Nor do the appellants question the Court’s power, in a proper case, to dismiss an action against certain defendants if it is one which, as to such defendants, cannot possibly succeed — or to strike out all or parts of a statement of claim with respect to such defendants as prejudicing or embarrassing a fair trial or as alleging facts which a plaintiff would not be allowed to prove at trial.

[33] The important thing to note is that the pleading did not just allege underlying facts, such as that the sexual contact was consensual, which the doctor hoped to prove by way of tendering the recantation (if allowed to do so by the trial judge). Instead, the pleading referred explicitly to the document itself. In the Statement of Defence and Counterclaim it stated “On September 5, 1995 the Plaintiff executed a sworn statement recanting all or substantially all of the allegations which she had levelled against Dr. S..” The pleading went on to outline the details of that statement.

[34] Since the law was clear that the document could not be tendered in evidence, the doctor had pleaded something which he would not be allowed to prove at trial. Accordingly, the pleading was properly struck out.

[35] The lesson that can be drawn from that case is that if a party pleads a document that is clearly inadmissible at trial, it is subject to being struck out at the pleadings stage. Applied to the case at bar, the proposition advanced by the plaintiff is that the defendant specifically pleaded an offer to settle in its Statement of Defence and Counterclaim. Since the law is well settled that offers to settle are protected by settlement privilege and are not admissible at trial, it is argued that the pleading should be struck.

[36] The problem with the plaintiff’s argument, though, is that the facts of this case are not as simple as those in F. (M.), where there was a clear statutory prohibition against the admissibility of a document that unquestionably fell within that prohibition. Here, the question as to the whether the telephone and email communications between the parties are protected by settlement privilege involves a three-part, fact-driven analysis. The test to be met is outlined by the Ontario Court of Appeal in Re: Hollinger Inc., 2011 ONCA 579 at para. 16:

It is well established that in order to foster the public policy favouring the settlement of litigation, the law will protect from disclosure communications made where;

1. there is a litigious dispute;

2. the communication has been made "with the express or implied intention it would not be disclosed in a legal proceeding in the event negotiations failed;" and

3. the purpose of the communication is to attempt to effect a settlement: see Bryant, Lederman & Fuerst, The Law of Evidence in Canada, 3d ed. (Markham: LexisNexis, 2009) at p. 1033, § 14.322); Inter-Leasing Inc. v. Ontario (Minister of Finance) (2009), 2009 CanLII 63595 (ON SCDC), 256 O.A.C. 83 (Ont. Div. Ct.).

[37] It is well settled that the use of the words “without prejudice” is not determinative of any right of settlement privilege: Lederman, Bryant & Fuerst, The Law of Evidence in Canada, 5^th Ed. (Markham: LexisNexis, 2018) at paras. 14.350 – 14.352 and 14.354. Here, there is a live dispute between the parties as to whether their communications in March and April 2020 were conducted on a without prejudice basis. There is also a real issue as to whether the purpose of such communications was to “settle” a “litigious dispute” between the parties, as opposed to a mutual effort to overcome the alleged quality issues and complete their contractual obligations, i.e. “to finish the job”. In such circumstances, the comments of Brown J. in Lakeside Steel Corp. v. White, 2007 CarswellOnt 3311 (S.C.J.) at paras. 14-15 are apt:

From the evidence filed by the parties it is clear that a live dispute exists as to whether some or all of the discussions that took place at the June 11, 2006 meeting were conducted on a without prejudice basis. While I acknowledge that in Canadian Gateway Development Corp. v. National Capital Commission, [2002] O.J. No. 3167 (Ont. Master) (Master), Master Beaudoin, at paragraph 12, stated that "where there are competing versions of an event, the Court must determine the issue of privilege after considering all of the circumstances under which the communication was made", in some cases such a determination may be difficult to make prior to trial.

In my opinion, this is such a case. To determine whether the discussions that took place on June 11, 2006 were in furtherance of settlement and cloaked with privilege would require making factual findings, including findings of credibility amongst the affiants. In my view, on a Rule 25.11 motion a court is not equipped to make factual findings based on contested evidence solely using affidavits filed by the parties on which no cross-examination has occurred.

[38] Furthermore, even if Algoma was able to satisfy me that all three factors outlined in Hollinger have been established, there are exceptions to the exclusionary rule “when the justice of the case requires it”: Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 at para. 12. It is difficult to imagine how a court could decide what the justice of the case requires, based only upon the pleadings and untested affidavit evidence that is in conflict.

[39] On the record before me, I am not well-positioned to be making the findings of fact necessary to engage in the factual analysis outlined in Hollinger, nor is it appropriate that I do so on a Rule 25.11 motion. The Ontario Court of Appeal, in Quizno’s Canada Restaurant Group v. Kileel Development Ltd., 2008 ONCA 644, at para. 16, cautioned against making determinations of the admissibility of evidence at the pleadings stage:

Pleadings are not the appropriate stage in an action to engage at large in what is essentially a trial judge's exercise for determining the admissibility of evidence at trial — i.e., weighing the probative value versus prejudice of facts. That exercise is not particularly well-suited to defining issues for trial, something which is for the parties to decide. Rule 25.11 provides that the pleading may be struck if it "may prejudice the fair trial of the action." A fair trial requires that the defendant be able to put forward a "full" defence, not — as the motion judge erroneously concluded — a "reasonable" defence defined in advance by the plaintiff and the court.

[40] The plaintiff has asked me to do exactly that: to make a pre-emptive ruling that the communications of March and April 2020 are inadmissible. I am not prepared to do so, and will leave that for the trial judge.

[41] For present purposes, though, it seems to me that it is not necessary to make a ruling one way or the other, because any risk that the present pleading might be referring to privileged communications can be avoided by amending the pleading as proposed by the defendant.

[42] The impugned pleading refers to a “proposal”. This may or may not be a proposal of settlement of a litigious dispute, but what really matters for purposes of CSC’s defence are the underlying facts that led to that proposal. Those would include knowledge that the steel had defects, what the root causes of those defects were, that such defects might be remedied by re-rolling the steel, and so on. The proposed amended pleading avoids that potential problem by focussing instead on what the plaintiff “knew or ought reasonably to have known”. That pleading is, in my view, entirely unobjectionable. Whether the defendant will be allowed to rely on the communications between the parties in March and April 2020 to prove that allegation will be a matter for the trial judge to determine.

[43] Algoma’s response to the proposed amended pleading is not that it, on its face, pleads facts protected by settlement privilege, but rather that the evidence that CSC relies upon to support the pleading is the same allegedly privileged series of discussions and emails. It relies on CSC’s Response to Demand For Particulars in this regard. I reject this argument. The motion and cross-motion are all about the pleadings, not about the evidence. While the discussions and emails are the evidence that CSC is currently able to point to that support these allegations, it may well be that other evidence will emerge through the discovery process or otherwise that also supports these allegations. Even if I were prepared to make a ruling that the discussions and emails are inadmissible, which I am not, it would be entirely inappropriate for me to deny CSC the right to plead the case that they want to plead, on the basis that they don’t, at present, have admissible evidence to support this particular allegation. It will be for the trial judge to determine whether or not CSC has proven this allegation, on a full evidentiary record.

[44] This distinguishes the present case from F. (M.), where the pleading relating to the recantation document was incapable of proof without tendering the inadmissible document itself. Here, it remains to be seen at trial whether the defendant can prove the allegations in its proposed amended pleading.

[45] Counsel for Algoma also took issue with the wording in subparagraph (iii) of the proposed amended pleading, which says: “… CSC could neither wait on Algoma to attempt further mitigation nor agree to an amendment of Algoma’s purported contractual limitations…”. The argument is that this pleading implies that there was an offer made by Algoma, which CSC could not agree to. I reject this argument. The proposed pleading does not refer to any offer made by Algoma, but is entirely focussed on the corporate state of mind of CSC.

[46] Accordingly, an order will go that subparagraph 13(g) of CSC’s Statement of Defence and Counterclaim shall be struck, and replaced with the new subparagraph proposed in CSC’s cross-motion. CSC shall serve and file a Fresh as Amended Statement of Defence and Counterclaim within 15 days. Algoma shall have leave to make any consequential amendments to its Reply and Defence to Counterclaim within 15 days thereafter, should it wish to do so.

[47] With respect to costs, my preliminary view is that success has been divided. The order I have made represents a middle ground, which eliminates any explicit reference to settlement proposals as desired by Algoma, while allowing CSC to plead the case it wants to plead. Accordingly, the appropriate order might be that costs shall be in the cause. I am, however, open to considering the submissions of counsel on the costs issue if they choose to pursue it. If so, Algoma shall file brief written submissions within 15 days, with CSC’s brief response to be filed within 10 days thereafter and any reply within 5 days thereafter. Failing that, costs of the motion and cross-motion will be in the cause.

T. A. Heeney J.

Released: April 21, 2021