OSHAWA COURT FILE NO.: CV-21-1671 DATE: 20220314 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

HAYLEY MIDDLETON Plaintiff – and – LEV 2 INC. Defendant

Counsel: Athanasios Makrinos, for the Plaintiff John Montgomery, for the Defendant

HEARD: March 3, 2022

REASONS FOR DECISION

CHARNEY J.:

Introduction

[1] The plaintiff, Hayley Middleton, brings this motion to amend her Statement of Claim.

[2] This is a wrongful dismissal action. The Statement of Claim was issued on October 7, 2020, and served on October 26, 2020.

[3] On December 17, 2020, the Defendant delivered its Statement of Defence.

[4] On January 18, 2021 the Plaintiff served her reply.

Facts Relevant to the Amendment

[5] The plaintiff alleges that on July 28, 2021, she was informed that the defendant had approached one of its employees after the plaintiff’s termination and requested that employee to falsify an employment contract and the plaintiff’s employee file. The plaintiff alleges that the defendant’s intention was to use these false documents for the purposes of the litigation.

[6] The plaintiff’s proposed amendments to the Statement of Claim adds this allegation of attempted fraud, and seeks increased aggravated and/or punitive damages for the alleged conduct.

[7] The defendant denies these allegations, and does not consent to the amendment. [1]

[8] The plaintiff moves under Rule 26.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for leave to amend the Statement of Claim.

Analysis

[9] Rules 26.01 and 26.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provide:

26.01 On 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.

26.02 A party may amend the party’s pleading,

(a) without leave, before the close of pleadings, if the amendment does not include or necessitate the addition, deletion or substitution of a party to the action;

(b) on filing the consent of all parties and, where a person is to be added or substituted as a party, the person’s consent; or

(c) with leave of the court.

[10] The cases under this rule are clear: “shall’ means “shall”, and amendments may be made at any time in a proceeding, for example, on the eve of, during, or after trial.

[11] In Marks v. Ottawa (City), 2011 ONCA 248, at para. 19, the Ontario Court of Appeal confirmed that “Although the general rule is that amendments are presumptively approved, there is no absolute right to amend pleadings. The court has a residual right to deny amendments where appropriate”. The Court summarized the appropriate factors to be considered in a motion to amend pleadings (at para. 19):

• An amendment should be allowed unless it would cause an injustice not compensable in costs.
• The proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious.
• No amendment should be allowed which, if originally pleaded, would have been struck.
• The proposed amendment must contain sufficient particulars.

[12] See also 1317424 Ontario Inc. v. Chrysler Canada Inc., 2015 ONCA 104, at para. 7:

One factor is that an amendment will not be allowed if it would have been struck out had it been originally pleaded. Applying the analysis from Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, a claim will be struck out under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 if it has no reasonable chance of success.

[13] In Brookfield Financial Real Estate Group Limited v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818, at para. 23, D.M. Brown J. (as he then was) held that tenability of a proposed claim is to be assessed with reference to the principles developed under the rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 analysis in the context of a motion to strike. He adopted the following discussion of the issue from Morden and Perell, The Law of Civil Procedure in Ontario, 1st ed. (Markham, Ont.: LexisNexis, 2010):

On a motion to amend a pleading, the court does not examine the factual merits of the proposed amendments or the moving party’s motives for seeking the amendment, but it does examine whether as a matter of law, the amendment raises a tenable claim or defence and whether the proposed amendment has been properly pleaded in the sense of complying with the rules that govern pleadings, including sufficient particularity. Put somewhat differently, it makes little sense to grant an amendment that will immediately be challenged as legally unsound, and the court may inquire into the merits to ensure that the amendment is tenable in law and compliant with the rules of pleading. The case law establishes that proposed amendments are to be read generously with allowance for deficiencies in drafting.

[14] The defendant accepts that such amendments are presumptively permitted at this stage of the litigation, but opposes the proposed amendment, because it submits that the proposed amendment raises a claim that is untenable at law. It argues that the allegation is scandalous, and, even if proven, could not lead to damages.

[15] The defendant acknowledges that the court is entitled to examine post-termination conduct as part of the assessment of damages so long as the conduct is “a component of the manner of dismissal”: Doyle v. Zochem Inc., 2017 ONCA 130, at para. 13; Gismondi v. Toronto (City of), at para. 23.

[16] The defendant argues that the allegations in the proposed amendment do not relate to the manner of the dismissal. The defendant states that “taken at its highest, the allegation in the proposed amendment constitutes a claim that the defendant contemplated fabricating evidence, in the form of a falsely signed contract, but ultimately did not follow through on its plan”. It argues that “the contemplation of a dishonest litigation strategy” does not relate to the manner of dismissal, and cannot, therefore, form the basis of a claim for moral damages.

[17] Finally, the defendant argues that apart from her claim for increased aggravated/punitive damages, the proposed amendments do not claim that any actual harm or damages were suffered by the alleged conduct. The proposed amendments are an attempt to portray the defendant as dishonest, a form of character evidence that is irrelevant to the allegations in this case, and therefore scandalous.

[18] There certainly are cases where the Court has declined to permit an amendment to the Statement of Claim on the basis that the proposed amendment related to a claim for punitive damages for litigation misconduct. In Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2015 ONSC 4658, Beaudoin J. held that, on the facts alleged in that case (a dispute over the ownership of certain intellectual property secured by a Canadian patent) litigation misconduct could not, on its own, form the basis of a claim for punitive damages. Beaudoin J. held, at paras. 52 – 53:

The plaintiffs’ proposed claim for punitive damages arising out of alleged litigation misconduct is certain to fail as against the defendants because the defendants owed no fiduciary duty to the plaintiffs during the litigation, and any failure to produce documents was cured before trial.

The allegations of litigation misconduct contained in the proposed amendments are relevant to a costs analysis, rather than an assessment of liability for punitive damages.

[19] In my view, the plaintiff’s proposed amendment does present a tenable claim and meets the low threshold established in cases such as Hunt v. Carey Canada Inc. under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. While the defendant may ultimately prevail on this point at trial, it is not “plain and obvious” that the claim based on the proposed amendment is certain to fail.

[20] I come to this conclusion for two reasons. The first is that the allegation in this case – an attempt to create a fraudulent employment contract and employee file – may qualify as post-termination conduct that relates to the manner of dismissal.

[21] In Honda Canada Inc. v. Keays, [2008] 2 S.C.R. 362, 2008 SCC 39, the Supreme Court Canada reviewed its earlier decisions in Vorvis v. Insurance Corp of British Columbia, [1989] 1 S.C.R. 1085 and held at para. 62:

In Vorvis, McIntyre J., for the majority, held that punitive damages are recoverable provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong”. This position stood until 2002 when my colleague Binnie J., writing for the majority, dealt comprehensively with the issue of punitive damages in the context of the Whiten case. He specified that an “actionable wrong” within the Vorvis rule does not require an independent tort and that a breach of the contractual duty of good faith can qualify as an independent wrong. Binnie J. concluded at para. 82 that: “[a]n independent actionable wrong is required, but it can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation.” … Damages for conduct in the manner of dismissal are compensatory; punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. This distinction must guide judges in their analysis.

[22] The court in Honda concluded that if an employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, an award that reflects the actual damages caused may be made by the court. The court gave examples of such conduct upon dismissal of the employee that could result in compensable damages. Among them are cases where an employer attacks the employee’s reputation by making declarations at the time of dismissal, making misrepresentations regarding the reason for the decision, and dismissal meant to deprive the employee of a pension or other benefit or right (Honda at para. 59). These examples do not exhaust the list of possible types of bad faith or unfair dealings in the manner of dismissal.

[23] It is at least arguable that the specific allegation in this motion to amend relates to conduct that qualifies as a breach of employer’s duty to act in good faith and to deal fairly with the plaintiff in relation to the dismissal. The terms of the employment contract and the contents of the employee file are issues in this litigation, and an attempt by the employer (even an unsuccessful attempt) to fabricate evidence in relation to these matters could be seen as a breach of the employers “obligation of good faith and fair dealing in the manner of dismissal”.

[24] Accordingly, the question of whether this allegation falls into the category of “post-termination conduct relating to the manner of dismissal”, which is compensable in damages, or to “litigation conduct”, which is only compensable in costs, is a matter best resolved by the trial judge within the context of the entire litigation.

[25] In Honda, the Supreme Court emphasized the limited circumstances in which an award of punitive damages may be appropriate, at para. 68:

[C]onduct meriting punitive damages awards must be “harsh, vindictive, reprehensible and malicious”, as well as “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment”.

[26] If the plaintiff is able to prove the allegations in the proposed amendment, and it qualifies as “post-termination conduct relating to the manner of dismissal”, it will be up to the trial judge to determine whether this conduct meets the criteria for punitive damages articulated by the Supreme Court in Honda.

[27] The second reason that it is not “plain and obvious” that the proposed amendment cannot succeed as a basis for claiming damages at trial is that there are some cases where serious litigation misconduct has attracted damages.

[28] In McCabe v. Roman Catholic Episcopal Corporation, 2019 ONCA 213, the Court of Appeal reviewed a trial decision where the jury awarded punitive damages to the plaintiff because the defendant had failed to admit liability until the first day of trial. The jury was asked the following question by the trial judge: “Does the failure of the Diocese to admit liability before the trial warrant an award of punitive damages?” The jury awarded punitive damages of $15,000.

[29] The majority of the Court of Appeal overturned the punitive damages award.

[30] Benotto J.A. dissented on this point. In her dissenting opinion, she held, at para. 43:

The conduct of the litigation has been held to be an independent actionable wrong that could give rise to punitive damages.

[31] Benotto J.A. then lists several cases (at paras. 44 – 47) to support this position and concludes, at para. 48:

While punitive damages are the exception rather than the norm, they may therefore be awarded to address conduct of the litigation deserving of condemnation.

[32] While Benotto J.A. was dissenting on this point, the majority’s disagreement does not appear to be on the basis of the legal principle stated, but on its application to the particular case. Roberts J.A., writing for the majority, held that the specific allegation of improper conduct in that case – a failure to admit liability earlier in the litigation – was not improper conduct. She stated, at para. 72 (citations omitted):

First, there was no basis in fact or law for this claim that punished the appellant for not making an earlier admission of liability. Punitive damages cannot be awarded solely for the failure or delay of a defendant to admit liability. To create such a category of punitive damages would completely undermine the foundation of the litigation process. A defendant is under no obligation to admit liability and, subject to attracting the elevated costs consequences I refer to below, may put the plaintiff to the strict proof of his or her allegations, no matter how painful the litigation process proves to be for the plaintiff, without fear of invoking a punitive damages award: see, generally... Unfortunately, that is the nature of the litigation process. It is adversarial. It is extremely expensive and often protracted. Its outcome is uncertain. Regardless of the underlying cause of action, all parties find the litigation process enormously stressful, especially plaintiffs who bear the burden of proving liability and damages because they commence the proceedings. In sum, while a defendant's failure or delay to admit liability may give rise to an adverse costs award, it does not serve as a standalone basis for punitive damages.

[33] Roberts J.A. also noted, at para. 75, that the plaintiff had never pleaded or alleged until after the trial evidence was completed that this would be a basis for claiming punitive damages, and it was procedurally unfair to the defendant to permit that question to go to the jury.

[34] The majority concluded, at para. 76 and 78, that while “a defendant's denial of liability, without more, does not attract an award of punitive damages, it may give rise to a considerable costs sanction… It is important to note, however, that a defendant's failure or delay to admit liability that falls short of litigation misconduct or abuse of process may not even attract elevated costs.”.

[35] Thus, as a general proposition, it would appear that genuine “litigation misconduct” attracts costs consequences rather than damages, but given the decisions cited by Benotto J.A. in her dissenting decision, and the narrow grounds for the majority’s disagreement with her decision, I cannot say that it is impossible for litigation misconduct to ever attract damages.

[36] See also Wiseau Studio, LLC et al. v. Harper et al., 2020 ONSC 2504, at paras. 242 and 244, where, in reliance on McCabe, Schabas J. awarded punitive damages in the defendant’s counterclaim, finding that the “plaintiffs’ conduct has been oppressive and outrageous towards the defendants over many years and in this lawsuit”. [Emphasis added]

Conclusion

[37] The plaintiff’s motion for leave to amend the Statement of Claim in the form attached to the Notice of Motion is granted.

[38] In fixing costs I have taken into account the fact that the defendant’s opposition to the amendment was based only on the issue of whether the proposed amendment presented a reasonable cause of action. While the defendant was not successful, the opposition to the amendment was not improper. Costs fixed in the amount of $3,300, inclusive of HST and disbursements, payable by the defendant to the plaintiff within 30 days.

Justice R.E. Charney

Released: March 14, 2022

Footnote:

[1] The defendant did consent to certain of the proposed amendments, but not this specific allegation. Counsel for the plaintiff advised that the proposed amendments were a “package deal”, so I will consider the amendments as a package and I will not consider individual paragraphs.