1734934 Ontario Inc. v. Tortoise Restaurant Group Inc., 2021 ONSC 8014

COURT FILE NO.: CV-12-470776

DATE: 2021-12-06

ONTARIO SUPERIOR COURT OF JUSTICE

RE: 1734934 Ontario Inc., 2187195 Ontario Inc., 2137362 Ontario Inc., 1901164 Ontario Inc., KE Restaurants Inc., Plaintiffs / Respondents

AND:

Tortoise Restaurant Group Inc., Turtle Jack’s Marketing Fund Inc., Tortoise Restaurant Group (2019) Inc., and 11554891 Canada Inc., Defendants / Appellants

BEFORE: Justice Mohan D. Sharma

COUNSEL: Daniel J. MacKeigan, Cole Vegso, for the Plaintiffs / Respondents Adrienne Boudreau and Jonathan Schachter for the Defendants/Appellants, Tortoise Restaurant Group Inc., Turtle Jack’s Marketing Fund Inc., and Tortoise Restaurant Group (2019) Inc. Eric Mayzel and Jonathon Shepherd for the Defendant / Appellant, 11554891 Canada Inc.

HEARD: October 15, 2021

ENDORSEMENT

[1] This is an appeal from an order of Master D. E. Short made April 13, 2021.

[2] In his order, the Master:

a. Granted leave to issue a Fresh as Amended Statement of Claim, which added the appellants, 1155491 Canada Inc. (“115”) and Tortoise Restaurant Group (2019) Inc. (“TRG 2019”) as defendants to this action. The Fresh as Amended Statement of Claim increased the quantum of damages claimed and added additional allegations regarding supplier contributions to an advertising fund.

b. Ordered the defendants to produce various documents relating to supplier contributions to an advertising fund, documents relating to transfers between the defendant, Tortoise Restaurant Group Inc. (“TRG”), TRG 2019 and 115; and documents relating to the assignment of franchise agreements by TRG, TRG 2019 and 115.

[3] As I will be citing portions of the Master’s decision, and to avoid confusion, I refer to the appellants as the defendants, and the respondents as the plaintiffs in my decision.

[4] The defendant, 115, appeals the order allowing the plaintiff to amend its pleadings, to add 115 as a defendant to this action, and the order that it produce documents. It seeks to have the plaintiffs’ original motion for this relief dismissed.

[5] The defendants, TRG, TRG 2019 and Turtle Jack’s Marketing Fund Inc. (“TJMF”) appeals the order allowing the plaintiffs to amend their pleading to include claims with respect to supplier money contributions to an advertising fund, and the order allowing documentary production related to those amendments.

[6] TRG 2019 does not appeal the decision that it be added as a party.

I. Facts

[7] This 2012 action was scheduled for a peremptory 10-day trial to commence on March 16, 2020.

[8] The plaintiffs are franchisees of Turtle Jack’s restaurants. They have franchise agreements with one or more of the defendants as franchisor. Only five of the original ten plaintiffs remain in this action. The plaintiffs allege breach of trust, misuse of funds and improper charges relating to an advertising and promotional fund (“Ad Fund”).

[9] The parties agreed to limit discoveries and evidence at trial to the fiscal years 2008 to 2018, with damages for later years to be agreed upon or assessed based on the determinations of the trial judge.

[10] On February 10, 2020, Justice Darla Wilson issued an endorsement in this action following a plaintiffs’ motion to adjourn the trial: 1734966 Ontario Inc. v. Tortoise Restaurant Group Inc., 2020 ONSC 888. The evidence on that motion suggests that (a) the plaintiffs were aware of a possible corporate reorganization of the TRG Defendants, involving both TRG 2019 and 115; and (b) that they were contemplating bringing a motion to add these entities as defendants.

[11] In her endorsement, Justice Wilson:

a. Dismissed the plaintiffs’ motion to adjourn the trial date of March 16, 2020, which was sought to complete documentary production, engage in discoveries, and to secure expert reports (paras 27, 10). The defendants, reluctantly, supported a brief adjournment (para 11);

b. Was highly critical of “the manner in which this case has wended its way through the justice system” over the prior 7 years involving 39 judicial attendances, which she found was “nothing short of disgraceful.” Despite the assistance of a case management judge, a master, and various court orders, the plaintiffs and defendants still complained about lack of productions and particulars (para 16);

c. Was critical of the decision made by plaintiffs’ counsel not to participate in court ordered discoveries, who chose instead to bring further motions (para 20).

d. Expressed the view that, rather than get the case ready for the peremptory trial date, “counsel chose to wage a war at every step of the proceedings” and that this “‘scorched earth’ philosophy does not benefit clients and it wastes precious judicial resources” (paras 23-24).

e. Concluded that “an adjournment of a peremptory trial date where there is no compelling reason to do so would make a mockery of the reason that cases are marked peremptory; and it would reward bad behaviour. It would simply provide counsel with the opportunity to launch additional motions to seek further productions and other court orders” (para 25).

[12] Due to the COVID-19 pandemic, this trial was not heard in March of 2020.

[13] On December 7, 2020, Justice Archibald, at a case conference, allowed the plaintiffs to bring a motion to amend their claim before a master. A timetable for that motion was established on consent. The appeal record is unclear to what extent, if any, Justice Archibald considered the February 10, 2020 endorsement of Justice Wilson or the plaintiffs’ motion material that was before Justice Wilson.

[14] Also, at the December 7, 2020 case conference, the defendants agreed to produce transfer documents as between TRG, TRG 2019 and 115 by December 14, 2020, but this was conditional on a related company, MTY Food Group Inc., providing its consent. At the time of the motion before Master Short, the plaintiffs state that the defendants and 115 had not produced the documents or explained why they had not been produced.

[15] The motion to amend the plaintiffs’ claim was heard by the Master on February 25, 2021. His decision was released on April 13, 2021. That decision is the subject of this appeal.

[16] A trial date is now fixed for November 14, 2022 for 15-days.

[17] The plaintiffs sought to amend the Statement of Claim for two reasons:

a. The Ad Fund had two streams of income: (i) advertising fees from franchisees, and (ii) payments from suppliers to the franchisor. The plaintiffs discovered during discoveries that some of the Ad Fund came from suppliers. As a result, they brought their motion to amend the Statement of Claim to account for supplier contributions to the Ad Fund, to increase their damage claim, and to obtain productions relating to those supplier funds.

b. The respondents learned in October and December of 2019 that TRG merged with a company, MTY Food Group Inc. (“MTY”), and that MTY had acquired a majority interest in Turtle Jack’s restaurants. In March of 2020, the respondents learned that TRG had assigned franchise agreements to 115. In the fall of 2020, the respondents came to understand that the transfer of franchise agreements had occurred through TRG 2019, and not TRG. Concerned about the corporate transfers or assignments among TRG, TRG 2019, MTY and 115 just before the March 2020 trial date, the plaintiffs sought to add TRG 2019 and 115.

II. Grounds of Appeal

[18] TRG, TJMF and TRJ 2019 (collectively, the “TRG Defendants”) and 115 prepared separate factums challenging the Master’s decision. Together, they argue the Master:

a. Erred in law by:

i. Misstating the rule and applying the wrong legal test to add a party;

ii. Applying the incorrect test to the claim of alter ego;

iii. Copying large portions of the plaintiffs’ factum;

iv. Providing insufficient reasons, namely (a) failing to make factual findings in respect of the plaintiffs’ actual knowledge of statute-barred claims, and by permitting amendments that were statute-barred; (b) by failing to address in his reasons the supplier money amendments; and (c) deciding against the defendants with no or inadequate reasons; and

v. Exceeding his jurisdiction.

b. Erred in fact or mixed fact and law by:

i. Ordering production from 115;

ii. Ignoring facts on the limitations issue;

iii. Disregarding, misapprehending, or failing to appreciate evidence showing the plaintiffs’ motion was an abuse of process; and

iv. Failing to consider that the plaintiffs’ amendments are doomed to fail.

[19] Rather than address each ground of appeal individually, I have considered them in the context of the four substantive issues: (1) Did the Master err in recopying significant portions of the plaintiffs’ factum? (2) Did the Master err in adding 115 as a party? (3) Did the Master err in permitting an amendment to allow claims related to supplier contributions to the Ad Fund; (4) Did the Master err in ordering production of documents relating to supplier contributions?

III. Standard of Review

[20] The standard of review on an appeal of a decision of an Associate Justice [previously Master] is set out comprehensively by Justice Perell in Bee Vectoring Technology Inc. v. Chitiz Pathak LLP, 2019 ONSC 1714 (footnotes omitted):

[23] A Master's decision will be interfered with on appeal, if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error; where the Master has erred in law, the proper standard of review is correctness.

[24] Zeitoun v. Economical Insurance Group establishes that the standard of appellate review from a master’s order is in accordance with the standards of appellate review set out by the Supreme Court of Canada in Housen v. Nikolaisen, which established that there are different standards of appellate review for issues of law, issues of fact, and issues of mixed fact and law.

[25] Issues of law are about what is the correct legal test. The standard of appellate review for errors of law is correctness. The application of an incorrect legal standard, a failure to consider a required element of a legal test, or an error in principle is an error in law. It is an error in law for a judge or tribunal member to fail to provide an explanation of his or her decision that is sufficiently intelligible to permit appellate review.

[26] Issues of fact are about what events took place between the parties. The standard of review for findings of fact is that factual findings ought not to be reversed unless it is established that the trial judge made a palpable and overriding error. The palpable and overriding error test is met if the findings are clearly wrong or can properly be characterized as unreasonable and unsupported by the evidence. A "palpable" error is one that is obvious, plain to see or clear. An "overriding" error is an error that goes to the root of the finding of fact such that the fact cannot safely stand in the face of that error.

[27] Questions of mixed fact and law are questions about whether the facts satisfy the legal tests. Where the legal principle is not readily extricable, then the matter is one of mixed law and fact. If fact-finding is integral to the ultimate determination of the question, the question is an issue of mixed fact and law. The standard of review for findings of mixed fact and law is on a spectrum between correctness and palpable and overriding error.

IV. Analysis

Issue #1: Did the Master err in law in copying large portions of the plaintiffs’ factum?

[21] The defendants argue the Master erred by reproducing large portions of the plaintiffs’ factum. They say more than 50% of his Reasons were reproduced from the plaintiffs’ factum, nearly word-for-word. They argue this leaves the impression the Master did not consider the defendants’ arguments, particularly since some of the copied portions included criticisms of the defendants that they believe are unfounded. They argue that a reasonable person, apprised of the circumstances, would conclude that the Master did not put his mind to the issues and decide them impartially and independently.

[22] The appellants cite Cojocaru v British Columbia Women’s Hospital and Health Centre, 2013, SCC 30 for the following propositions:

a. Judicial decisions can be set aside because the reasons for judgment incorporate materials from other sources. This raises questions as to whether the decision reached was procedurally fair. Fairness requires that judges decide issues independently and impartially (para 12).

b. “The question is whether a reasonable person would conclude that the alleged deficiency, taking into account all relevant circumstances, is evidence that the decision-making process was fundamentally unfair, in the sense that the judge did not put her mind to the facts, the arguments and the issues, and decide them impartially and independently” (para 13).

c. Evidence capable of displacing the presumption of judicial integrity and impartiality may take different forms. The question is whether the evidence presented by the party challenging the judgment convinces the reviewing court that a reasonable person would conclude that the judge did not perform her sworn duty to review and consider the evidence with an open mind (para 29).

d. Copying in reasons for judgment is not, in itself, grounds for setting the judge’s decision aside. However, if the incorporation of the material of others would lead a reasonable person apprised of all the relevant facts to conclude that the trial judge has not put his or her mind to the issues and made an independent decision based on the evidence and the law, the presumption of judicial integrity is rebutted and the decision may be set aside (para 49).

[23] I have reviewed the plaintiffs’ factum on the motion and the Master’s reasons. There is undoubtedly copying of the plaintiffs’ factum. The portions recopied:

a. Relate to the factual history of this case or set out the factual position of the plaintiffs on the motion (paras 4, 17, 19, 20, 27, 36, 37, 48, 49),

b. Describe relevant rules or legal tests (paras 24, 25, 29, 32, 33, 35, 46, 47, 50), or

c. Apply the facts to the rules/legal tests (paras 31, 34, 40, 41, 42, 43, 44, 45, 50, 52).

[24] After careful review of each paragraph, I am not satisfied that a reasonable person would conclude that the Master failed to put his mind to the issues or to make an independent decision, with the exception of para 49, which I discuss below.

[25] First, the Master sometimes attributed the statement to the plaintiffs.

[26] Second, when the Master copied word-for-word and without addition, it was usually done in the context of recounting rules or legal tests. However, when he added text, he expressed his own view with respect to the plaintiffs’ statement or he expressly adopted the position (see, e.g., para 33, “They argue persuasively that….”; para 34 “it seems to me that…”, para 35, “I accept that….”; para 42, “I accept the argument that the Plaintiffs will, in all likelihood,….”; para 44, “I accept that it is clearly arguable, as set out in the plaintiff’s submissions, that….”; para 47, “In my opinion, the Plaintiffs have satisfied this test.”). In my view, the frequency with which he used such language when copying the plaintiff’s text suggests that the Master did turn his mind to the issues set out in the plaintiffs’ factum.

[27] Third, there is a practical reason why documents must be submitted to the Court electronically, which is to give judicial officers the benefit of being able to cut and paste from the parties’ documents when writing their Reasons. This is expedient, particularly when Reasons set out the positions of the parties or recount relevant rules and legal tests.

[28] The threshold for rebutting the presumption of judicial integrity and impartiality is high (see Cojocaru at para 20). I cannot conclude it has been met in this case. I am satisfied that the Master, by the language he used, benefited from the plaintiffs’ factum in preparing his reasons and he duly considered their positions before adopting them. I find that a reasonably informed person aware of the circumstances would conclude that he turned his mind to the issues in making independent and impartial decisions on this motion.

Issue #2: Did the Master err in law in adding 115 as a party (based on the principle of issue estoppel; by misstating the rule; applying the wrong legal test to add a party; or by applying the wrong test of an alter ego)?

Master’s Jurisdiction

[29] 115 argues that the Master erred in law in adding 115 as a party because this issue was previously decided by Justice Wilson. It argues a Master does not have the authority to collaterally attack, vary, change or reverse an order of a judge (see r. 37.02(2)(b), and Holden Corp. v Gingerfield Properties Ltd., 1988 CanLII 4549, paras 26, 30). It also argues that the doctrine of issue estoppel precludes a judicial officer from deciding an issue that was previously decided. It says these arguments were raised before the Master but were ignored in his reasons.

[30] I agree that these arguments were ignored in the Master’s reasons. Because this issue was raised in the TRG Defendants’ factum, challenging the authority of the Master to render his decision, his failure to address them was an error of law. However, even if the Master erred in law, I cannot conclude that the Master exceeded his jurisdiction by varying or reversing a decision of a judge.

[31] In the plaintiffs’ motion to adjourn the March 2020 trial date heard by Justice Wilson, the plaintiffs were aware of a possible corporate reorganization of the TRG Defendants, involving both TRG 2019 and 115, and expressed an intention to bring a motion to have them added as parties. The affidavit of Heather Pearce, sworn January 17, 2020, in support of the plaintiffs’ motion states at para 75,

“The Plaintiffs are investigating the most recent reorganization as it appears that the 2019 TRG or another corporation has taken over the business of TRG and is its successor. I am advised by Mr. Vegso, co-counsel for the Plaintiffs, that it may be necessary to bring yet another motion to amend the claim to add the 2019 TRG or another corporation as a Defendant.”

[32] Justice Wilson dismissed the motion to adjourn. After careful review of her reasons, I cannot accept the argument made by 115 on this appeal that “Justice Wilson denied the adjournment, stating specifically that there had been no change in the landscape of the case that warranted an adjournment.” Respectfully, and reading Justice Wilson’s endorsement in its entirely, I cannot conclude that Justice Wilson ruled that a motion to add a party could not be brought.

[33] Rather, at para 18, she said: “While counsel for the Plaintiffs submits that the landscape of the case has changed since the fixing of the trial date, I do not accept this submission.” This statement, read in the context of the entire Endorsement, does not lead me to the conclusion that Justice Wilson considered the plaintiffs’ proposed motion to add parties, or that she ruled that the motion should not be heard. The issue decided in her endorsement was whether to grant a trial adjournment. Nowhere in her endorsement does she comment on the proposed motion to add parties. Instead, she assessed the plaintiffs’ proffered reasons for the adjournment – incomplete documentary production, discoveries had not been completed, no expert reports had been secured, mediation had not taken place (paras 10, 18-24). She did not expressly consider the merits of the plaintiffs’ potential motion to add parties as set out in their affidavit. A review of the Notice of Motion reveals the plaintiffs did not argue that the trial should be adjourned because of a potential motion to add parties.

[34] Accordingly, I cannot conclude that Justice Wilson made a ruling on whether to permit a motion to add parties. Therefore, the Master’s order cannot be said to vary, alter or reverse the order of Justice Wilson.

Issue Estoppel

[35] With respect to issue estoppel, 115 relies on Kendall v. Sirard, 2007 ONCA 468 from the Ontario Court of Appeal. In that case, the defendant brought a motion to adjourn an upcoming trial to allow time for a defence medical examination of the plaintiff (“the first defence motion”). This motion was dismissed by Little J., citing the defendant’s delay. The defendant sought leave to appeal that decision, which was also dismissed. The defendant then wrote to plaintiff’s counsel advising of dates for the defence medical examinations of the plaintiff, to be held prior to trial. But plaintiff’s counsel responded saying the defendant was out of time and the plaintiff would not attend the examinations.

[36] Defence counsel then brought a motion to compel the plaintiff to attend the defence medical examinations (“the second defence motion”). Rady J. dismissed the second defence motion. In her reasons, she explained

“...an adjournment request has already been entertained by the court and turned down. One of the reasons for the adjournment request was to permit defence medical examinations. I view this motion as very much the same thing although dressed up a little differently.”

[37] The defendant then sought leave to appeal Rady J.’s order. That motion for leave was dismissed by Kennedy J.

[38] When the matter was called for trial, the trial judge set aside the decision of Kennedy J. He then dealt with the merits of the motion for leave to appeal the decision of Rady J. The trial judge concluded “it would be unjust and prejudicial to the defendant to force him to go to trial without a defence medical,” and granted leave to appeal the decision of Rady J. The Divisional Court allowed the appeal and ordered the plaintiff to attend the defence medical examinations. That decision was then appealed to the Court of Appeal.

[39] The Court of Appeal held that the first defence motion decided by Rady J. was, in substance, the same motion previously brought before Little J. In other words, the first defence motion was substantially the same as the second defence motion. The court ruled that once the motion for leave to appeal the order of Little J. was dismissed, the defence was precluded from bringing a further motion to compel attendance at a defence medical. At para 45, the Court stated:

“Were it otherwise, a party who was unsuccessful the first time and where there has been no change in circumstance, could bring the same motion before any number of judges in an effort to find one who would grant the relief sought. Such multiplicity of proceedings is to be discouraged.”

[40] While I appreciate the argument 115 is making, Kendall is distinguishable. In Kendall, the first motion and the second motion both had the same underlying purpose – to enable the defendant to obtain defence medical reports. As noted above, I cannot conclude that Justice Wilson made a finding or ruling with respect to the plaintiffs’ motion to add new parties. Nor can I conclude, after careful review of her Endorsement, that this potential motion by the plaintiffs weighed into her decision-making. Her reasons denying the adjournment focused on the late request of the plaintiff to have further productions and engage in discoveries; it was not because the plaintiffs brought a late request to have a motion heard. She did not reference this potential motion in her Endorsement, and the plaintiffs’ Notice of Motion did not reference this potential motion as a basis for the requested adjournment. The only reference to it is in paragraph 75 of the 76 paragraph supporting affidavit on the motion for the adjournment. Even there, it simply states “it may be necessary to bring another motion to amend the claim to add [parties].” Therefore, I cannot find that the motion before Justice Wilson was substantially the same as the motion before the Master, or that the motions were for the same thing “although dressed up differently”. As such, the Master’s order does not raise concerns with respect to issue estoppel.

Test to Add a Party

[41] Rule 26.01 governs a motion to amend pleadings. It reads:

On a motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[42] Rule 26.02(c) states that a party may amend the party’s pleading after the close of pleadings, with leave of the court.

[43] Rule 5 speaks to joining parties to a claim. The intention behind this rule is that everyone concerned with the issues be before the court at one hearing.[^1] This intention is also reflected in rule 5.03(1) which states:

Every person whose presence is necessary to enable the court to adjudicate effectively and completely on the issues in the proceeding shall be joined as a party to the proceeding.

[44] Rule 5.03(4) states:

The court may order that any person who ought to have been joined as a party or whose presence as a party is necessary to enable the court to adjudicate effectively and completely on the issues in the proceeding shall be added as a party.

[45] Rule 5.04(2) states:

At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[46] 115 argues the Master misstated rule 5.03(4) by using the word “shall” when the operative word is “may”. At paragraphs 24 and 25 of his reasons, he said:

[24] Rule 26.01 states that the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result. Rule 5.03(4) states that any person whose presence as a party is necessary to enable the court to adjudicate effectively and completely on the issues in the proceeding shall be added as a party. In my view, all of the factors requiring consideration under Rule 5.02(2) apply to the proposed new Defendants. [Bold in original]

[25] Amendments to add parties should be presumptively approved, unless there is abuse of the court process or non-compensable prejudice. The onus lies on the proposed new defendant to prove non-compensable prejudice. Adding complication to the action, increased work and legal expense or having to produce documents are not the type of prejudice envisioned by the Rule.

[47] The authority on this issue confirms that the exercise of authority to add a party is discretionary. In Plante v. Industrial Alliance Life Insurance Co., 2003 CanLII 64295 (ONSC), the court described the test to be met to add a party:

[25] Addition of a party engages a slightly different analysis because rule 5.04(2) is discretionary and not mandatory. The wording is similar to rule 26.01 and therefore is subject to the same tests as discussed above. Notwithstanding that those tests may be met, the court retains a discretion to refuse addition of a party. Such discretion of course is not whimsical but based on the principles of fairness and judicial efficiency. It would be appropriate to withhold consent if joinder will unduly complicate or delay the proceeding, or if any of the circumstances exist which would justify relief against joinder under rule 5.03(6) or rule 5.05. It would also be appropriate to withhold consent if the addition of a party appears to be an abuse of process.

[26] Rule 5.04(2) reads as follows:

5.04(2) At any stage of a proceeding the court may by order add, delete or substitute a party . . . on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[27] The tests for adding a party under rule 5.04(2) may therefore be stated as follows:

(a) The proposed amendment must meet all of the tests under rule 26.01.

(b) Joinder should be appropriate under rule 5.02(2) or required under rule 5.03. The addition of the parties should arise out of the same transaction or occurrence (rule 5.02(2)(a)), should have a question of law or fact in common (rule 5.02(2)(b)), or the addition of the party should promote the convenient administration of justice (rule 5.02(2)(e)).

Adding a party will be particularly appropriate if it is unclear which of the original defendant or the proposed defendant may be liable (rules 5.02(2)(c) or (d)), or if it is necessary that the proposed defendant be bound by the outcome of the proceeding or his or her participation is otherwise necessary to allow the court to adjudicate effectively (rule 5.03(1)).

(c) Joinder should not be inappropriate under rule 5.03(6) or 5.05. The addition of a party should not unduly delay or complicate a hearing or cause undue prejudice to the other party. In a case-managed proceeding, it may also be appropriate to withhold consent if it will cause significant disruption to the court-ordered schedule: Belsat Video Marketing Inc. v. Astral Communications Inc. (1999), 1999 CanLII 1092 (ON CA), 86 C.P.R. (3d) 413, 118 O.A.C. 105 (C.A.).

(d) Addition of a party will not be permitted if it is shown to be an abuse of process. Abuse of process will exist where the addition of a party is for an improper purpose such as solely to obtain discovery from them, to put unfair pressure on the other side to settle, to harass the other party or for purely tactical reasons. National Trust Co. v. Furbacher, [1994] O.J. No. 2385 (QL) (Gen. Div.); MacRae v. Lecompte (1983), 1983 CanLII 3052 (ON SC), 143 D.L.R. (3d) 219, 32 C.P.C. 78 (Ont. H.C.J.).

[48] The plaintiffs state that the Master’s reference to “shall” in his reasons was due to a typographical error in their factum which the Master copied. The plaintiffs state their reference to rule 5.03(4) ought to have been to rule 5.03(1) which states: “Every person whose presence is necessary to enable the Court to adjudicate effectively and completely on the issues in a proceeding shall be joined as a party to the proceeding.”

[49] I find that the Master erred in law by recounting the incorrect test to add a party. On careful review of his Reasons, I find that he did consider several relevant factors in the exercise of his discretion to conclude that 115 should be added as a party. For example,

a. Non-compensable prejudice: In paragraphs 40 to 47 of his Reasons, the Master considered the issue of prejudice to the plaintiffs if 115 is not added as a party. He also considered prejudice to the new defendants (para 34) and noted that they are not unrelated strangers to this litigation and “will suffer no unjustified prejudice if they are added to this claim” (para 45).

b. Whether adding the defendants was appropriate with regard to the factors in r. 5.02(2): In paragraph 24, the Master provided his view that all the factors in rule 5.02(2) apply. Later, he assessed whether the plaintiffs’ may have a legally tenable claim against the new defendants as assignees or alter egos of the original defendants arising from the same franchise agreement and the uncertainty around their assignment (paras 26 – 39). As stated in Plante, “[a]dding a party will be particularly appropriate if it is unclear which of the original defendant or proposed defendant may be liable.” The Master offered his view that, if the new defendants were not added, there may be multiple proceedings involving the same parties and same issues (para 42), and that productions from the new defendants would be necessary for the trial judge to make determinations on liability and damages (para 39). At para 34, he was of the view that the plaintiffs’ claims could be defeated by the assignment of the Franchise Agreements.

c. Prejudice. As noted, the Master did consider prejudice against the new defendants. He also balanced the potential prejudice against the plaintiffs if the new defendants were not added (i.e., multiple proceedings, issue estoppel and res judicata in para 42). In his assessment of prejudice, he concluded it would be “unjust and prejudicial for the plaintiffs to be deprived of these substantive rights by virtue of the defendants’ stripping all of their assets and obligations under the Franchise Agreements on the eve of trial” (para 43). He considered the conduct of the defendants, and the fact that they had not yet produced documents with respect to the assignments between TRG, TRG 2019 and 115 (para 19), and that he was suspicious of the timing of the incorporation of the new defendants (paras 37-39).

Abuse of Process

[50] However, in my view, the Master failed to consider a critical issue raised by the defendants on the motion, namely whether adding 115 constituted an abuse of process (see Plante at para 25). I believe he also misapprehended the evidence with respect to 115’s involvement in this action, which raises abuse of process concerns, particularly given this action’s history.

[51] At the time the Master heard the motion in February of 2021, the trial was set to proceed three months later in May of 2021. The defendants argued before the Master that the plaintiffs were aware of the corporate reorganization since 2019 or early 2020, yet the plaintiffs waited over a year to bring this motion a few months before trial. The defendants also relied on Esses v. Bank of Montreal, 2008 ONCA 646 at para 38 for the proposition that a motion to amend may be rightly refused on the basis of abuse of process where a motion to amend drifts in late. The defendants also relied on the endorsement of Justice Wilson from February 2020 where she was very critical of the plaintiffs delay in having this case ready for trial, which calls into question the plaintiffs’ motive for this motion just months before the trial date. The defendants further relied on evidence with respect to 115’s role in this litigation, which was ignored by the Master in his reasons. Namely, that:

a. 115 did not exist during the years of 2008-2018, the years at issue in the trial. 115 is therefore not needed for adjudication of those years. But if it is added as a party, it will have rights to defend the plaintiffs’ claims for those years, which would only increase costs and delay the hearing of the trial.

b. TRG has acknowledged that it has not transferred liability to 115; it remains fully responsible for claims in this proceeding. In addition, 115 had paid TRG 2019 $19 million, so there would be enough funds for any judgment against TRG 2019. This casts doubt on to the plaintiffs’ motive for adding 115 to this action.

c. Of the five remaining plaintiff corporations (representing 7 locations), three had shut down before 115 purchased the assets of the franchise from TRG 2019 in December of 2019 and can have no valid claim against 115; a further plaintiff closed its operations in January of 2020, one month after the acquisition; and a further location closed in November of 2020. Now, only two of the plaintiff franchisees continue to operate with 115 (1901164 Ontario Inc. and KE Restaurants Inc.).

[52] None of the above was considered or referenced in the Master’s reasons. They all relate to the abuse of process concerns raised by the defendants. While a judicial officer is not required to address all arguments raised by a party during a hearing, the complete failure to address any of these points strongly suggest (a) that the Master did not duly consider whether adding 115 was an abuse of process, or (b) that he misapprehended the evidence with respect to this issue.

[53] In my opinion, adding 115 as a party now would constitute an abuse of process. The plaintiffs were delayed in bringing this motion. The delays in this case, and the burdens it has presented for the Court cannot and should not be ignored. The shift in culture called for in the Supreme Court of Canada’s decision in Hyrniak v. Mauldin, 2014 SCC 7, has not yet surfaced among the players in this case. Since 2016, there have now been more than 45 court attendances in this 2012 action. Each has cost the litigants in this case and placed burdens on the civil justice system, making court time unavailable for other cases that require judicial assistance. Adding 115 as a party at this stage would add unnecessary costs, would require further discoveries, and would likely result in further motions for production. All of which would add to the already lengthy procedural history of this case and would be disproportionate to the nature of the dispute and the interests involved, given 115’s potential limited liability, if any. Having regard to these factors and the history of this case, I can readily conclude that adding 115 would result in an abuse of process.

[54] For these reasons, I set aside the Master’s order to add 115 as a party.

Alter Ego

[55] 115 also argues that the Master applied the wrong test and misapprehended the evidence in granting leave to amend the statement of claim to add an allegation that 115 is an alter ego and agent of TRG and TRG 2019. Given my ruling setting aside the Master’s order to add 115 as a party, I need not address this issue.

Issue #3: Did the Master err in law in permitting an amendment to allow claims related to supplier fund contributions to the Ad Fund (by (a) failing to make factual findings in respect of the plaintiffs’ actual knowledge of statute-barred claims, and by permitting amendments that were statute-barred; (b) by failing to address in his reasons the supplier money amendments; and (c) deciding against the defendants with no or inadequate reasons)?

[56] The defendants argue that the supplier money amendments are statute-barred due to the Limitations Act, 2002, since the issue was canvassed at examinations for discovery in 2016, was the subject of a letter from plaintiffs’ counsel in 2017, and the subject of a refusals motion in 2017. The plaintiffs’ motion to amend was not brought until January 18, 2021, and therefore exceeds the two-year limitation period from when the claim was discovered.

[57] They also argue that the Master failed to address or consider this issue in his reasons, and that he ignored authority confirming that non-compensable prejudice results from allowing statute-barred amendments.

[58] They further argue that the Master, when allowing the supplier money amendments, failed to consider their arguments that it is plain and obvious the plaintiffs’ new claim has no chance of success.

[59] The plaintiffs say that including the supplier amendments does not alter the original claim or raise a new cause of action. The cause of action remains the same: breach of contract, breach of trust and breach of the defendants’ duties to deal fairly and act in good faith regarding the Ad Fund. The plaintiffs state that the amendments simply provide additional particulars of the existing claims relating to the misuse and management of the Ad Fund. They further assert that before February 2020, the defendants alleged the supplier contributions were rebate monies, but at the discovery of Mr. Lishman in February of 2020, it became clear that substantial supplier promotional funds intended for in-store promotions, were redirected to TRG.

[60] The plaintiffs argue that the Master properly turned his mind to this issue in his Reasons. In the alternative, they state that if the Master was incorrect and the supplier amendments raise a new claim, the defendants can still assert a limitations defence.

[61] The relevant principles on a motion to amend as to whether a new claim is statute-barred, or whether it is merely providing further particulars of an existing claim are set out by the Court of Appeal for Ontario in Polla v Croation (Toronto) Credit Union Limited, 2020 ONCA 818:

[32] The general rule respecting the amendment of pleadings is that an amendment shall be granted at any stage of a proceeding on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 26.01. The expiry of a limitation period in respect of a proposed new claim is a form of non-compensable prejudice, where leave to amend to assert the new claim will be refused: Klassen v. Beausoleil, 2019 ONCA 407, 34 C.P.C. (8th) 180, at para. 26.

[33] There is no real dispute between the parties about the applicable test. In 1100997 Ontario Limited v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, this court observed that an amendment to a statement of claim will be refused if it seeks to assert a “new cause of action” after the expiry of the applicable limitation period. As this court explained, at para. 19, in this context, a “cause of action” is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person” (as opposed to the other sense in which the term “cause of action” is used – as the form of action or legal label attached to a claim: see the discussion in Ivany v. Financiere Telco Inc., 2011 ONSC 2785, at paras. 28-33).

[34] The relevant principles are summarized in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 4th ed. (Toronto: LexisNexis Canada, 2020), at pp. 220-21, as follows:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.

This passage has been cited with approval by this court. See 1100997 Ontario Limited, at para. 20, Davis v. East Side Mario’s Barrie, 2018 ONCA 410, at para. 32, and Klassen, at para. 29.

[37] The necessary starting point is to consider the substance of the appellant’s claim before he sought the pleadings amendment. What acts or omissions that would give rise to the respondents’ liability were already at issue in the action? The court must determine whether the existing pleading already contains the factual matrix to support any claim to which the proposed amendment relates, or whether the amendment seeks to put forward additional facts that are necessary and material to a new and different claim.

[38] In conducting this assessment, the court must read the pleadings generously in favour of the proposed amendment: Klassen,at para. 30; Rabb Construction Ltd. v. MacEwen Petroleum Inc., 2018 ONCA 170, 29 C.P.C. (8th) 146, at para. 8. The existing pleadings, together with the proposed amendment, must be considered in a functional way – that is, keeping in mind that the role of pleadings is to give notice of the lis between the parties. As such, the question in this case is whether the respondents would reasonably have understood, from the Amended Statement of Claim and the particulars provided on discovery, that the appellant was pursuing a claim in respect of the matter addressed by the proposed amendment.

[62] In my view, the Master failed to provide sufficient reasons and misapprehended the evidence in relation to whether to allow amendments to include claims for supplier contributions to the Ad Fund. The only paragraph of his Reasons where this is discussed is in para 49, which reads:

[49] Before the February 2020 examinations for discoveries, the Defendants alleged that all supplier contributions were rebate monies and refused to produce relevant documents. The documents which show that suppliers paid for marketing programs (and contradict the Defendants' rebate allegations) were not produced until after March 2019. At the examination of Clark Lishman in February 2020, it became clear that (substantial) supplier promotional funds that were intended to benefit the Franchisees (Ad Fund) were redirected to TRG. I accept that the proposed amendments to the Statement of Claim are intended to better particularize the claim for Supplier Support, which is an issue that has been pursued by the Plaintiffs' throughout this litigation.

[63] The Master’s reasons do not demonstrate that he conducted a comparison of the existing claim with the proposed amendments. If he had done so, he would have noted that the plaintiffs were asserting new material facts in the amendments to support this new claim. In other words, he conducted no meaningful assessment of whether the amendments constituted a new claim.

[64] The Master did not address any of the defendants’ evidence which shows that the plaintiffs were aware of supplier contributions to the Ad Fund in 2016. The issue of supplier contributions to the Ad Fund was discussed at the cross-examination of the defendants’ principal, Mr. James Lishman, held on August 11, 2016:

BY PLAINTIFFS’ COUNSEL:

193 Q. The marketing, advertising and promotion fund is funded by the contributions made by franchisees; right?

A. Correct.

194 Q. Is it funded by anything other than that?

A. Yes, there is other funds being allocated to that.

195 Q. Such as?

A. Going by memory, allocations we would get from suppliers.

196 Q. What does that mean?

A. Allocations we would get from our suppliers, financial allocations we get from our suppliers.

[65] On the same day, plaintiffs’ counsel put further questions to Mr. Lishman with respect to supplier contributions to the Ad Fund:

226. Q. … what portion of that advertising fee represents other sources such as supplier contributions?

227. Q. And you also have told us that supplier promotion money is included in the or added into the ad fund; is that correct?

228. Q. What’s the difference between [supplier] promotional fees and rebates?

229. Q. So you have now told us that there’s some promotional money that comes in from Molson’s. Thank you.

[66] Supplier contributions to the Ad Fund was also a subject of a February 2017 letter from plaintiffs’ counsel to a judge of this Court, which confirmed the plaintiffs were aware that “the [Ad] Fund received significant monies from suppliers for promotions that were expenses through the [Ad] Fund but they admittedly did not apply the supplier funds to the [Ad] Fund.”

[67] This issue was also the subject of a refusals motion in June of 2017. One question refused by the defendants was to advise of the source of, and what was done with, approximately $260,000 in promotional fees received from a supplier in 2008. On June 7, 2017, Master (now Associate Justice) Abrams refused to order answers to these questions. She wrote:

These questions need not be answered. Promotional monies are irrelevant to the matters at issue on the summary judgment motion. Then too, there is no evidence before me that they have been deposited to the marketing Department General Ledger or any account containing the MAP Fund contributions of the plaintiffs.

[68] These facts were critical to the defendants’ argument before the Master that this claim was statute-barred, but none of it was discussed in his reasons. The Master does refer to a distinction between supplier money being “rebates” which were supposed to be used for the Ad Fund but were redirected to TRG, and that some of this information only came to light following a 2020 examination of Mr. Lishman. How these funds are characterized is of little bearing to the assessment of when the plaintiffs discovered supplier funds formed part of the Ad Fund. Furthermore, the Master failed to consider the defendants’ evidence that the plaintiffs were aware of supplier contributions to the Ad Fund from as early as August of 2016.

[69] The Master’s reasons also do not evidence an assessment of whether or not the supplier contribution amendments were legally tenable. In Steinberg v. Ellis Entertainment Corp., 2012 ONCA 362 at para 22, the Court of Appeal held that the court should refuse an amendment to a pleading if it is clearly impossible of succeeding. The defendants, on the motion before the Master, cited express provisions of the governing franchise agreements which states the plaintiffs (as franchisees) have no claim to money paid by suppliers to the franchisor. This was not considered by the Master in his Reasons.

[70] For these reasons, I find that the Master erred in law and this error is subject to the standard of correctness. His order to amend the pleadings to include claims with respect to supplier contributions to the Ad Fund is set aside.

[71] In a successful appeal from an order of a Master granting leave to add statute-barred amendments to a statement of claim, the court may substitute its own decision in place of the Master’s decision (see Malik v Nikbakht, 2019 ONSC 3118).

[72] In my opinion, after careful review of the amended claim, this is not a case where the plaintiffs are merely providing particulars of an allegation already pled or additional facts upon which the original right of action is based. The original claim sought a determination of the amounts properly chargeable and expended from the Ad Fund. The amended claim seeks an accounting, declarations and determination of supplier and promotional funds into the Ad Fund (paras 1(c)(iii) – (v)). The amended claim also alleges new facts that are necessary and material to this new claim, namely an express or implied duty to apply supplier contributions to the Ad Fund (para 8a). Supplier contributions to the Ad fund is not a matter of simply expanding the scope of a damages claimed upon facts already pled; it raises a new, discrete and separate claim based on a newly pled express or implied duty of the defendants. While it may have well been an appropriate basis for the plaintiffs to have expanded their claim, they are confronted with the obstacle that this claim was discovered by the plaintiffs in 2016.

[73] Pursuant to s. 4 of the Limitations Act, 2002, a proceeding “shall not be commenced in respect of a claim after the second anniversary of the day on which it was discovered.” I find that the plaintiffs discovered that money from suppliers were allocated to the Ad Fund on August 11, 2016 when Mr. Lishman was cross-examined. Had the learned Master engaged in the proper analysis, he would have seen that the claim was statute-barred and the amendment should have been refused. The plaintiffs argue, in the alternative, that I should allow the statute-barred claim and permit the defendants to argue a limitations defence at trial. I disagree. It is not appropriate to allow a statute-barred amendment in the first place: see Colin v. Tan, 2016 ONSC 1187 at para 59.

[74] The plaintiffs argue that they have actively pursued supplier support claims during this litigation. Assuming this is true, it only has bearing on when this claim was discovered. It has no bearing on calculating the expiration of a limitation period after the claim was discovered.

[75] If I am wrong in my analysis of whether the amendment constitutes a new claim that is statute-barred, I would still disallow the amendments in relation to this claim because it is plain and obvious that this new claim is not legally tenable.

[76] As noted, the franchise agreements (art. 14.03) governing the remaining plaintiffs expressly states the plaintiffs (as franchisees) have no claim to money paid by suppliers to the franchisor. This provision expressly states that the franchisor owes “no fiduciary, trust, and are under no duty” to share, distribute or account for these funds. Furthermore, the defendants cite another portion of the franchise agreement (art. 7.08) which expressly states that the only funds in the Ad Fund are monies paid by the franchisees. In their amended claim, the plaintiffs fail to identify any express contractual provision to support a conclusion that supplier contributions form part of the Ad Fund. Nor have they identified such a provision on this appeal.

[77] The plaintiffs argue that franchise agreements are to be construed in light of the contract as a whole that accords with sound commercial principles and good sense and avoids commercial absurdity. They also note that franchise agreements are contracts of adhesion, to be construed contra proferentem, and in recognition of the obligations of a franchisor to act honestly, fairly and in good faith.

[78] However, the plaintiffs have not argued that any of the express contractual provisions relied upon by the defendants are ambiguous. On this appeal, they have not offered a basis to conclude that the express language in the franchise agreement is open to another interpretation. As stated by my colleague, Justice Goldstein, “I simply do not see how a reasonable cause of action is disclosed in the face of the clear and unambiguous terms of…the franchise agreement” (see 2130679 Ontario Inc. v. The Cora Franchise Group Inc. 2013, ONSC 3099 at para 21). Moreover, the duties with respect to performance and enforcement of a franchise agreement, as expressed in the Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c. 3, cannot be used to amend a franchise agreement by altering express terms of the franchise contract (see Fairview Donut Inc. v TDL Group Inc., 2012 ONSC 1252 at para 500).

[79] On this appeal, the plaintiffs argue that the defendants, on the motion before the Master, did not argue that the plaintiffs failed to plead contractual provisions that entitled them to this money. The plaintiffs are wrong. Para 20 of the 115’s factum before the Master made this argument, as did para 30 of the TRG defendants’ factum.

[80] As a further reason not to allow this amendment, it would appear to be an abuse of process. Even if I found it was not statute-barred, I would have concluded that it constituted an abuse of process for the following reasons: (1) it would be the sixth time the plaintiffs have amended their pleading; (2) the plaintiffs have known of this issue since at least 2016, but the motion before the Master was brought just months before an upcoming trial date; (3) the number of court attendances in this case strongly suggest that “enough is enough” and it is time to get on with this trial.

[81] For these reasons, the Master’s order allowing amendments to the plaintiffs’ claim relating to supplier contributions to the Ad Fund is set aside.

Issue #4: Did the Master err in ordering production of documents?

[82] Since I have set aside the Master’s order allowing amendments to the plaintiffs’ claim relating to supplier contributions to the Ad Fund, I would order that documents related to this issue need not be produced by the defendants. However, I am alive to the plaintiffs’ argument at the motion before the Master that the defendants have claimed set-off in their Amended Defence for the supplier support that was applied to the Ad Fund. If the defendants intend to argue set-off, fairness demands that there be production to the plaintiffs of documents related to the set-off.

[83] Therefore, I modify the Master’s order and order that there be production of documents related to the issue of supplier contributions to the Ad Fund to the extent the defendants are claiming a set-off for any these funds. If set-off will be an issue at trial, the plaintiffs are entitled to see documents relating to any amount the defendants are claiming.

[84] Regarding the Order for production of documents with respect to (a) the transfers, (b) transfers of assets and/or shares, (c) assignment of franchise agreements, and (d) any joint venture between TRG, TRG 2019 and 115, the Order is amended to exclude any reference to 115. Since this appeal did not seek to set aside the Master’s Order with respect to TRG 2019 and, therefore, TRG 2019 remains a defendant in this action, TRG and TRG 2019 are to produce to the plaintiffs relevant documents relating to transfers, assignments or any joint venture as between them.

V. Conclusion

[85] For the reasons set out above, I grant the defendants’ appeal and set aside the Master’s order (a) amending the plaintiffs’ pleading to include claims relating to supplier contributions to the Ad Fund, and (b) adding 115 as a defendant to this action.

[86] I also set aside his order granting production of documents to the plaintiffs relating to supplier contributions to the Ad Fund, save and except production of supplier contributions to the Ad Fund on which the defendants claim a set-off. The order for production of documents with respect to transfers, assignments and any joint venture remains in place as between TRG and TRG 2019, but it no longer compels production of documents from 115.

VI. Costs

[87] Parties are encouraged to agree upon an appropriate cost award, failing which they may submit cost submissions of a maximum of 3 pages, with an attached bill of costs. The defendants may deliver cost submissions within 14 days; the plaintiffs may deliver responding submissions 14 days thereafter; the defendants may delivery reply submissions 7 days thereafter.

Justice M. D. Sharma

Date: December 06, 2021

[^1]: Ontario Annual Practice, 2020-2021 (Eds. Carthy, W.D.A. Millar, J. Cowan), Comment Rule 5 Parties and Joinder.