Court File and Parties

COURT FILE NO.: CV-16-565324 MOTION HEARD: 2021-12-07 REASONS RELEASED: 2022-03-29

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

RHONDA KASTNER Plaintiff

• and-

CHITIZ PATHAK LLP and DANIEL F. CHITIZ Defendants

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: J. Vale and D. Fogel E-mail: joelvale@rogers.com -for the Plaintiff

I.McKellar E-mail: imckellar@dgllp.ca -for the Defendants

REASONS RELEASED: March 29, 2022

Reasons For Endorsement

I. Introduction

[1] This is a motion by the Plaintiff for leave to amend her Amended Statement of Claim in this solicitor’s negligence action. The proposed amendments relate to alleged litigation misconduct by Defendant’s counsel. The motion also arises in the context of an adjourned motion by the Plaintiff to remove Defendant’s counsel in this action.

II. Background

[2] The Defendants are lawyers who acted for the Plaintiff in two actions commenced in 2010 and 2012 (the “Actions”). The Plaintiff commenced this action by Statement of Claim issued on December 5, 2016 while the Actions were still continuing. In her Amended Statement of Claim delivered in February 2017 (the “Amended Claim”) the Plaintiff seeks damages of $2,000,000 for the Defendants’ negligence and breach of loyalty, trust and confidence, retainer, contract and fiduciary duties for acting in and failing to disclose a conflict of interest in the Actions. The Plaintiff also seeks $650,000 in fees and disbursements paid to the Defendants, $100,000 paid to other professionals, $100,000 for embarrassment, anguish and stress and punitive damages of $500,000.

[3] Sean Dewart and Dewart Gleason LLP (“DG”) were retained by LawPro to represent the Defendants. The Defendants delivered their Statement of Defence on January 31, 2017. After being retained, DG received the Defendants’ files for the Actions (the “Files”) which were contained in 15 boxes (the “Boxes”). Upon receipt, a DG staff member attached labels to the Boxes which identified the Boxes by number (eg. 1 of 15, 2 of 15, etc.), name of the insurer which retained DG (LawPro), name of the insured (Chitiz, Daniel) and DG’s internal file number (100-16-579) (the “Labels”). The Labels did not identify the contents of the Boxes.

[4] When the Plaintiff commenced this action, the Defendants exercised a solicitor’s lien over the Files claiming that she owed $6,000 with respect to an outstanding account. On January 12, 2017, Mr. Dewart advised Plaintiff’s counsel, Joel Vale, that the Boxes would be delivered after Mr. Dewart received confirmation from the Defendants that the Plaintiff had settled the outstanding account and upon receipt of Notices of Change of Lawyers in the Actions. He directed Mr. Vale to deal directly with the Defendants regarding the fees. Mr. Vale did not deliver a Notice of Change of Lawyers and the Defendants brought motions to be removed from the record in the Actions.

[5] On March 9, 2017, the Defendants attended before Master Pope (as she then was) on their motions for removal as lawyers of record in the Actions. In her Endorsement dated April 4, 2017, Master Pope held that it was not reasonable for the Defendants to assert a solicitor’s lien and ordered the Defendants to deliver the Files to the Plaintiff. The Files were scanned on to 2 USB keys which DG delivered to Mr. Vale on April 19, 2017. Mr. Vale claimed that the scanned files on the USB keys were incomplete and requested the original paper Files.

[6] On May 1, 2017, DG staff advised Mr. Vale that the Boxes containing the Files were ready for pick up. Prior to pick up, a DG staff member removed the Labels. After the Boxes were delivered to Mr. Vale he advised that he viewed the removal of the Labels as “obstructionist conduct” and that their removal made it impossible to effectively organize and review the Files. On May 12, 2017, Mr. Dewart advised that the Labels had been intentionally removed. Mr. Vale continued to request electronic copies of the Files he insisted were not included on the USB keys. In January 2018, DG delivered the Defendants’ Affidavit of Documents and scanned copies of all Schedule “A” productions which they claim includes the documents that Mr. Vale previously advised were not on the USB keys.

[7] The Actions settled and were dismissed by Order of Firestone J. dated November 26, 2019. On November 29, 2019, Mr. Vale wrote to Mr. Dewart requesting that the discovery plan for this action address the Labels. On December 9, 2019, Mr. Dewart delivered a draft discovery plan which included a proposal that DG would retrieve the Boxes, use best efforts to renumber them and return them to Mr. Vale. Mr. Vale did not provide any comments on the discovery plan. On January 6, 2020, the Plaintiff served a Notice of Motion returnable March 26, 2020 (the “Label Motion”) seeking an order that DG pick up the Boxes and re-deliver them to Plaintiff’s counsel “numbered and organized in accordance with the index corresponding to each box number and document”.

[8] Extensive correspondence between Mr. Vale and Mr. Dewart followed in which Mr. Dewart repeated his offer to retrieve the Boxes and make best efforts to re-label them. Mr. Vale advised that the Plaintiff would resolve the Label Motion if the Defendants consented to an order requiring DG to organize the Boxes exactly as they had been when they were sent to Mr. Vale in 2017. Since Mr. Vale could not guarantee that the Boxes were organized as they were when he received them, Mr. Dewart advised that he could not consent to an order he may not be able to comply with. He repeated his offer to make best efforts to re-label the Boxes.

[9] On February 27, 2020, the Plaintiff served her Motion Record in support of the Label Motion returnable March 26, 2020. The Label Motion did not proceed due to the suspension of regular court operations arising from the COVID-19 pandemic. Mr. Dewart affirmed a responding affidavit on March 31, 2020. The Plaintiff scheduled an attendance on October 13, 2020 at Civil Practice Court (“CPC”) to schedule the Label Motion. Given that the Plaintiff had not identified a Rule upon which the Label Motion was based, Sanfilippo J. refused to schedule it as it was not possible to determine if it should proceed before a Judge or a Master. Sanfilippo J. ordered the parties to attend a case conference before a Judge to speak to jurisdiction, timing and a timetable for the action.

[10] The parties attended a Chambers appointment before Leiper J. on October 26, 2020. Leiper J. did not schedule the Label Motion, ordering that the parties be provided with 2 weeks to have the Boxes returned for re-labelling and “practical communications between the parties about their contents”. Another Chambers appointment proceeded before Leiper J. on November 10, 2020. In her Endorsement, Leiper J. notes that more time is required to complete the labelling exercise which might address the Label Motion “without prejudice to any party’s right to seek costs”. DG returned the Boxes to Mr. Vale on November 26, 2020. The Label Motion has not proceeded.

[11] On December 13, 2020, the Plaintiff brought a motion to remove Mr. Dewart and DG as Defendants’ counsel (the “Removal Motion”) on the basis that Mr. Dewart and DG will be witnesses at trial. The Removal Motion first came before me on August 31, 2021. During his submissions, Mr. Vale advised that the Plaintiff intended to amend the Amended Claim. As the proposed amendments relate to the alleged conduct of DG which is the subject of the Removal Motion, I adjourned the Removal Motion sine die so that the Plaintiff could deliver a draft Amended Amended Statement of Claim (the “Amended Amended Claim”) and the parties could obtain instructions and determine if the parties’ could agree on the amendments. Counsel advised during a telephone case conference on September 17, 2021 that the Plaintiff had delivered a draft Amended Amended Claim and the Defendants opposed the proposed amendments. Given the impact on the Removal Motion, this motion by the Plaintiff for leave to amend her Amended Claim (the “Pleadings Motion”) was scheduled. The Removal Motion remains adjourned sine die pending the disposition of the Pleadings Motion.

III. The Law and Analysis

[12] The only issue on this motion is whether the Plaintiff should be granted leave to amend her Amended Claim in the form of the Amended Amended Claim to plead regarding the alleged litigation misconduct of Mr. Dewart and DG.

[13] Rules 26.01 and 26.02 state:

“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.

[14] The contemporary approach to pleadings motions was summarized by Flynn J. in Sleep Clinic London Inc. v. Merchea, 2012 ONSC 3004, [2012] O.J. No. 2471:

“22 Long gone are the days when pleadings motions could be approached in an overly technical manner. Generally speaking, a party should be at liberty to craft a pleading in the manner it chooses, providing that the Rules of pleadings are not violently offended and there is no prejudice to the other side.”

[15] Amendments should be presumptively approved unless they would result in prejudice that cannot be compensated by costs or an adjournment; they are shown to be scandalous, frivolous, vexatious or an abuse of the court's process; or they disclose no reasonable cause of action (Andersen Consulting v. Canada (Attorney General), 2001 CarswellOnt 3139 (C.A.) at para. 37; Schembri v. Way, 2012 ONCA 620 at paras. 25 and 44).

[16] The Court of Appeal summarized the law on pleadings amendment motions in 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42:

“ [25] The law regarding leave to amend motions is well developed and the general principles may be summarized as follows:

The rule requires the court to grant leave to amend unless the responding party would suffer non-compensable prejudice; the amended pleadings are scandalous, frivolous, vexatious or an abuse of the court's process; or the pleading discloses no reasonable cause of action.

The amendment may be permitted at any stage of the action.

There must be a causal connection between the non-compensable prejudice and the amendment. In other words, the prejudice must flow from the amendments and not from some other source.

The non-compensable prejudice may be actual prejudice, i.e ., evidence that the responding party has lost an opportunity in the litigation that cannot be compensated as a consequence of the amendment. Where such prejudice is alleged, specific details must be provided.

Non-compensable prejudice does not include prejudice resulting from the potential success of the plea or the fact that the amended plea may increase the length or complexity of the trial.

At some point, the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party will be presumed.

The onus to prove actual prejudice lies with the responding party.

The onus to rebut presumed prejudice lies with the moving party.”[citations omitted]

[17] In Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6359, the Divisional Court held that proposed amendments should be permitted where they arise out of the same facts or factual matrix that was pleaded in the original statement of claim (Farmers Oil at para. 22). The Divisional Court concluded that the proposed amendments were integral to the dealings already pleaded, factually intertwined with the existing allegations and part of the same factual matrix:

“In the end result, the requirement to read a pleading generously, and the concomitant requirement to allow amendments unless they will inflict non-compensable prejudice, means that the presumption is that any amendment, that can reasonably be seen as falling within the four corners of the existing claim, ought to be permitted….” (Farmers Oil at para. 31).

[18] The Court of Appeal provided guidance regarding causes of action and limitations periods in Klassen v. Beausoleil, 2019 ONCA 407:

“25 The rule is framed in mandatory terms: the court must allow the amendment, unless the responding party would suffer non-compensable prejudice, the proposed pleading is scandalous, frivolous or vexatious, or the proposed pleading fails to disclose a reasonable cause of action: 158844 Ontario Ltd v. State Farm Fire and Casualty Co., 2017 ONCA 42, 135 O.R. (3d) 681, at para. 25; Iroquois Falls Power Corp. v. Jacobs Canada Inc., 2009 ONCA 517, 264 O.A.C. 220, at paras. 15-16.

26 The expiry of a limitation period is one form of non-compensable prejudice. A party cannot circumvent the operation of a limitation period by amending their pleadings to add additional claims after the expiry of the relevant limitation period: Frohlick v. Pinkerton Canada Ltd, 2008 ONCA 3, 88 O.R. (3d) 401, at para. 24; 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, at paras. 21-23; United Food and Commercial Workers Canada, Local 175 Region 6 v. Quality Meat Packers Holdings Limited, 2018 ONCA 671, at paras. 64; Davis v. East Side Mario's Barrie, 2018 ONCA 410, at paras. 31-32. In this regard, the "addition of new statute-barred claims by way of an amendment is conceptually no different than issuing a new and separate Statement of Claim that advances a statute-barred claim" (emphasis added): Quality Meat Packers, at para. 64; citing Frohlick, at para. 24.

27 An amendment will be statute-barred if it seeks to assert a "new cause of action" after the expiry of the applicable limitation period: North Elgin, at paras. 19-23, 33; Quality Meat Packers, at para. 65. In this regard, the case law discloses a "factually oriented" approach to the concept of a "cause of action" -- namely, "a factual situation the existence of which entitles one person to obtain from the court a remedy against another person": North Elgin, at para. 19; Quality Meat Packers, at para. 65.

28 An amendment does not assert a new cause of action -- and therefore is not impermissibly statute-barred -- if the "original pleading ... contains all the facts necessary to support the amendments ... [such that] the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded": Dee Ferraro, at paras. 4, 13-14; North Elgin Centre Inc., at paras. 20-21; East Side Mario's Barrie, at paras. 31-32; Quality Meat Packers, at para. 65. Put somewhat differently, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a "fundamentally different claim" based on facts not originally pleaded: North Elgin, at para. 23.

29 The relevant principle is summarized in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis, 2017), at p. 186:

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.

30 In the course of this exercise, it is important to bear in mind the general principle that, on this type of pleadings motion, it is necessary to read the original Statement of Claim generously and with some allowance for drafting deficiencies: Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources), 2016 ONSC 6359, 134 O.R. (3d) 390 (Div. Ct.), at para. 23.”

[19] The courts have adopted a broader, factually-oriented and less technical approach to determining if a new cause of action has been pleaded, consistent with the purposive approach to the interpretation of limitations provisions, in particular, a defendant’s basic entitlement to have notice of the factual matrix from which a claim arises (1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 at paras. 18-24).

[20] In Cerqueira v. Ontario, 2010 ONSC 3954, Strathy J. (as he then was) held that the purpose of pleadings is to to give precise notice to the opposite party of the case which is to be met, sufficient to enable the opposite party to plead; assist the court in understanding the material facts alleged and the factual and legal issues in dispute between the parties; and establish a benchmark against which the parties and the court may determine the relevance of evidence on discovery and at trial and the scope of the evidence which will be required to fairly and efficiently address the issues in dispute (Cerqueira at paras. 11-12).

[21] If a plaintiff provides a reasonable explanation on proper evidence as to why the essential facts were not known or obtainable with due diligence such that it is determined that there is a triable issue of fact or credibility on the discoverability allegations, the court will normally permit the amendments with leave to plead limitations defences (Skrobacky (Litigation Guardian of) v. Frymer, 2014 ONSC 4544 at para. 6).

[22] The Court of Appeal provided the following guidance regarding limitations periods and discoverability in Mancinelli v. Royal Bank of Canada, 2018 ONCA 544:

i.) the motion judge is entitled to assess the record to determine, as a question of fact, if there is a reasonable explanation on proper evidence as to why the plaintiff could not have discovered its claim through the exercise of reasonable diligence. If a plaintiff does not raise any credibility issue or issue of fact about when its claim was discovered that would merit consideration on a summary judgment motion or a trial and there is no reasonable explanation on the evidence as to why the plaintiff could not have discovered the claim by exercising reasonable diligence, the motion judge may deny the motion (para. 23);

ii.) the evidentiary threshold to be met by a plaintiff is low and whether the plaintiff and its counsel acted with reasonable diligence must be considered in context (para. 24);

iii.) in considering whether the plaintiff has provided a reasonable explanation as to why they could not have identified the party (or cause of action), the explanation is to be given a generous, contextual reading (para. 27);

iv.) a plaintiff’s failure to take reasonable steps to investigate a claim is not a stand-alone or independent ground to find a claim out of time, rather, the reasonable steps a plaintiff ought to take is a relevant consideration in deciding when a claim is discoverable under s. 5(1)(b)(para. 30);

v.) where the issue is due diligence, the motion judge will not be in a position to dismiss the plaintiff’s motion in the absence of evidence that the plaintiff could have obtained the requisite information with due diligence, and by when the plaintiff could have obtained such information, such that there is no issue of credibility or fact warranting a trial or summary judgment motion (paras. 28 and 31).

[23] In the Amended Claim, the Plaintiff claims special and punitive damages arising from the Defendants’ refusal to immediately deliver the Files to the Plaintiff due to their assertion of the Lawyer’s Lien for outstanding accounts of $6,000 (amounting to 1% of $650,000 in fees paid). The Plaintiff alleges that this was in breach of the Defendants’ duties as officers of the court, contract and good faith and prevented the Plaintiff from mitigating her damages in the Actions.

[24] In the Amended Amended Claim, the Proposed Amendments include allegations that the Defendants are vicariously liable for Mr. Dewart and DG’s litigation misconduct whereby they had control and custody of the Files from January 14, 2017 to May 10, 2017 and November 1, 2020 to November 26, 2020 but did not properly deliver the Files to the Plaintiff until November 26, 2020. The Plaintiff alleges that Mr. Dewart and DG rendered the Files unusable by removing the Labels which they knew or should have known would result in the recipient not knowing which documents corresponded to which box or index, all of which was in breach of Master Pope’s order, designed to hinder, delay or confuse the litigation and gives rise to punitive damages. The Proposed Amendments also include pleadings with respect to the Plaintiff’s assertion that the Proposed Amendments are not barred by operation of the Limitations Act, 2002 (Ontario).

[25] The Plaintiff submits that the Proposed Amendments are not new causes of action but further particularize the Plaintiff’s existing claim for punitive damages for non-delivery of the Files until November 26, 2020. The Defendants submit that the Pleadings Motion is a tactical attempt to gain an advantage on the Removal Motion and the Proposed Amendments are unrelated to the existing claims in the Amended Claim, constitute a new cause of action barred by the Limitations Act, offend Rule 5.05 regarding joinder, would result in non-compensable prejudice and are frivolous and vexatious.

[26] In my view, the Pleadings Motion may be premature or, at the very least, further submissions and clarifications are required. The issues raised by this Pleadings Motion are unique. Namely, the Proposed Amendments are comprised of facts and allegations related to what the Plaintiff characterizes as the “litigation misconduct” of Mr. Dewart and DG regarding the Boxes and the Labels all of which occurred after the commencement of this action and are the subject of another motion and judicial case management. As such, the Pleadings Motion overlaps and is inextricably linked with the Label Motion which deals with the same conduct complained of in the Proposed Amendments. This complicates my consideration of the Proposed Amendments particularly since it is not clear to me from the record or the parties’ submissions whether the Label Motion has been withdrawn, is not being pursued, has concluded or is ongoing.

[27] Leiper J’s Endorsement dated November 10, 2020 leaves open the possibility of further relief including costs. The Plaintiff acknowledges that the Boxes were “properly delivered” on November 26, 2020 as a result of Leiper J’s directions, however, the Plaintiff’s own submissions are not clear as to whether the Label Motion was fully disposed of, stating that it was “partially” resolved on consent on November 10, 2020. The Proposed Amendments further overlap with orders and directions made by Leiper J. given that it appears from the Amended Amended Claim that the Plaintiff takes the position that the alleged litigation misconduct of Mr. Dewart and DG continued even after they retrieved the boxes as ordered by Lieper J. during case management.

[28] As the Plaintiff now seeks to plead facts and allegations related to the Label Motion in her Amended Amended Claim, the status of the Label Motion and the related case management have the potential to materially affect my disposition of the Pleadings Motion. This includes my consideration of whether the Proposed Amendments constitute a new cause of action or are part of the existing factual matrix, the limitations issues raised by the Defendants and related issues of discoverability and whether the Proposed Amendments are legally tenable. Further, the potential remedies on the Pleadings Motion are not limited to allowing or denying all of the Proposed Amendments such that it may be the case that some of the Proposed Amendments are permissible, some are not and/or further leave to amend is appropriate.

[29] These issues are more pronounced given that this action is still in the early stages before examinations for discovery. While there is case law in support of granting punitive damages as a result of litigation conduct, it largely addresses damages awarded at the conclusion of the litigation. There appears to be little or no guidance with respect to pleading counsel’s conduct during ongoing litigation, including at the early pre-discovery stage, where the substance of the Proposed Amendments are also the subject of other motions and judicial case management. The nature and timing of this motion also raises the possibility of future amendments as the litigation progresses requiring consideration of whether amendments at this stage would be the most efficient and cost-effective approach when the alleged litigation conduct complained of may still be subject to adjudication and case management by the court prior to trial.

[30] Accordingly, to address the issues set out above, the Pleadings Motion is adjourned to a telephone case conference or 30-minute attendance before me on any day I am sitting so that counsel can speak to the status and any outstanding relief or issues with respect to the Label Motion and judicial case management. After I have heard from counsel, I will determine if I can release Reasons disposing of the Pleadings Motion, whether it should remain adjourned, whether further steps are required or if other relief is just and appropriate in the circumstances. I am satisfied that this approach is consistent with the court’s requirement under Rule 1.04(1) to liberally construe the Rules to secure the just, most expeditious and least expensive determination of the issues before me.

[31] In releasing these Reasons For Endorsement, I make no determinations or disposition with respect to the merits of the Pleadings Motion.

IV. Disposition and Costs

[32] The Pleadings Motion is adjourned to a case conference or attendance before me to be scheduled by counsel. The Removal Motion remains adjourned sine die.

[33] The costs of the Pleadings Motion are reserved to the final disposition of the motion.

Released: March 29, 2022

Associate Justice McGraw