COURT FILE NOS.: CV-19-614170 & CV-20-653635
DATE: 2022 01 18
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2466123 ONTARIO INC., Plaintiff
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IVANCROFT HOLDINGS INC., Defendant
AND RE: IVANCROFT HOLDINGS INC., Plaintiff
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AADITYA BIPIN KHIMASIA, Defendant
BEFORE: Associate Justice Todd Robinson
COUNSEL: M. Hochberg, for 2466123 Ontario Inc. and Aaditya Khimasia (moving parties)
J. Nawrocki, for Ivancroft Holdings Inc. (responding party)
HEARD: October 15, 2021 (by videoconference)
REASONS FOR DECISION
Overview
[1] Ivancroft Holdings Inc. (“Ivancroft”) is the landlord of premises previously leased to 2466123 Ontario Inc. (“246 Ont”). 246 Ont operated a restaurant of the franchise known as “Fat Bastard Burrito” from the premises. Aaditya Bipin Khimasia (“Khimasia”) is the principal of 246 Ont, and the indemnifier under an indemnity agreement for 246 Ont’s covenants and obligations under the lease.
[2] Following a ceiling collapse in the leased premises, 246 Ont vacated the premises and discontinued payments under its lease. 246 Ont alleges that Ivancroft repudiated the lease by refusing to complete necessary repairs as required by the lease and failing to honour the covenant for 246 Ont’s quiet enjoyment of the premises. 246 Ont issued a statement of claim in Court File No. CV-19-614170 (subsequently amended) seeking reimbursement of rent payments following the roof collapse, damages for conversion, and $5 million in damages for economic losses suffered by Ivancroft’s alleged repudiation of the lease.
[3] Ivancroft’s position in the litigation that that 246 Ont breached the lease. Among other defences, Ivancroft alleges that it was entitled to review all plans and drawings before commencing repairs of the collapsed roof, which were not provided by 246 Ont, and that 246 Ont commenced work without Ivancroft’s approval, including cutting gas supply to the entire building leaving residential tenants without hot water. These and other breaches of the lease led to Ivancroft issuing a notice of termination that was ultimately rescinded by agreement to terms. Ivancroft says that 246 Ont did not honour those terms.
[4] A few months after examinations for discovery were completed in October 2020, Ivancroft commenced a separate action against Khimasia in Court File No. CV-20-653635 claiming damages pursuant to the indemnity agreement for 246 Ont’s breaches of the lease. Khimasia denies liability. Ivancroft’s position is that its action against Khimasia was issued solely to preserve the limitation period for its claim.
[5] 246 Ont and Khimasia have each brought motions seeking an order staying Ivancroft’s action and consolidating the claim against Khimasia into 246 Ont’s action to be asserted by way of counterclaim. Ivancroft opposes that relief as being improper and unnecessary. Ivancroft is willing to have the two actions tried together, but not consolidated. Relief was also sought by 246 Ont compelling answers to outstanding undertakings from Ivancroft’s examination for discovery. However, prior to the motion hearing, Ivancroft provided those answers. No undertaking-related relief was pursued at the hearing.
[6] Three main issues are to be decided on these motions:
(a) Is the proposed consolidation and counterclaim procedurally available? In particular, is a counterclaim against only a non-party permitted by the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”)?
(b) Is Ivancroft’s intention to move for security for costs a relevant factor in deciding consolidation?
(c) If consolidation is not granted, should trial together be ordered? If so, should any additional directions be provided?
[7] I have determined that, contrary to the submissions made by 246 Ont and Khimasia, the form of consolidation they seek is not available under the Rules. Ivancroft has not claimed or counterclaimed against 246 Ont and the Rules do not permit a counterclaim as against only a non-party. Consolidation is accordingly not available in the circumstances of this case and whether or not Ivancroft’s claim is consolidated does not preclude 246 Ont from raising the existence of that claim in defence of any security for costs motion.
[8] Nevertheless, the two actions are evidently related and ought to be tried together, to which Ivancroft has agreed. I am thereby granting the alternative relief sought that the two actions be tried together, or one after another, as the trial judge may direct. I am also exercising my discretion to impose terms that should avoid unnecessary duplication of documents and oral discoveries between the two proceedings.
Analysis
[9] Both motions are brought under Rule 6.01 of the Rules. It provides the court with various options upon being satisfied that two (or more) proceedings have questions of law or fact in common, seek relief arising out of the same transactions or occurrences, or for any other reason. The court may order that the proceedings be consolidated or heard at the same time or one immediately after the other, that any of the proceedings be stayed until after the determination of another of them, or that any of the proceedings be asserted by way of counterclaim in another of them. The last option is central on this motion.
[10] Ivancroft agrees that relief under Rule 6.01 should be granted. The disagreement is over the specific relief itself. Prior to these motions, Ivancroft proposed staying its action pending a determination in 246 Ont’s action and abiding by the outcome of that action. 246 Ont did not agree to that proposal.
[11] In their motions, 246 Ont and Khimasia seek an order staying Ivancroft’s action against Khimasia and requiring that Ivancroft’s claim instead be asserted by way of counterclaim in 246 Ont’s action. Ivancroft’s primary objection is that the parties in the two proceedings are not the same, so the proposed order would require the pleadings to be contorted to fit the consolidation. Ivancroft argues that such a process is not necessary and should not be granted.
Is the proposed consolidation and counterclaim procedurally available?
[12] Rule 6.01(1)(e)(ii) does contemplate ordering that a claim in one proceeding be asserted by way of counterclaim in another. However, Rule 6.01 does not exist in isolation from Rule 27, which governs the procedure for counterclaims. None of the provisions under that rule contemplate a counterclaim against a non-party without also claiming against the plaintiff.
[13] Rule 27.01(2) permits a defendant to claim against a person not already a party to the main action by way of counterclaim. However, the language used specifically limits joinder of such a non-party to a counterclaim against the plaintiff. Rule 27.01(2) states as follows: “A defendant who counterclaims against a plaintiff may join as a defendant to the counterclaim any other person whether a party to the main action or not, who is a necessary or proper party to the counterclaim” (emphasis added).
[14] Language in Rule 27.04, which deals with service of a statement of defence and counterclaim, also supports that the plaintiff must be a defendant by counterclaim. Rule 27.04(1) outlines the time for service of a statement of defence and counterclaim “[w]here a counterclaim is only against the plaintiff, or only against the plaintiff and another person who is already a party to the main action”. Rule 27.04(2) outlines the time for service of a statement of defence and counterclaim where a new party is named, expressly contemplating a counterclaim “against the plaintiff and a defendant to the counterclaim who is not already a party to the main action”.
[15] Rule 27.07 deals with amending a statement of defence to add a counterclaim. It similarly refers consistently to claiming against the plaintiff. Rule 27.07(1) addresses adding a counterclaim “only against the plaintiff or only against the plaintiff and another person who is already a party to the main action”. Rule 27.07(2) addresses adding a counterclaim “against the plaintiff and another person who is not already a party to the main action”. In both instances, the plaintiff is a defendant by counterclaim.
[16] 246 Ont and Khimasia submit there is no precondition to granting relief under Rule 6.01 that the parties in two actions be identical. They cite a plethora cases in support of their position. Several are cases in which a consolidation was granted, in which claims in the second proceeding were ordered to be asserted by counterclaim in the first one. Each of those cases is factually distinguishable from this matter:
(a) In Lam v. Scintrex Trace Corp., [2003] OJ No 3143 (SCJ-Master), the parties in the two proceedings were the same, with the plaintiff in each action being the defendant in the related action. The disputed claims were between the same parties in both proceedings. Here, the only common party to both actions is Ivancroft.
(b) In Diamond v. 996087 Ontario Ltd. (c.o.b. Academy for Gifted Children), 2013 ONSC 5612, the applicant and the respondent in one proceeding were, respectively, the defendant and the plaintiff in the related proceeding. Similar to Lam, the disputed claims were between the same parties in both proceedings.
(c) In Schneider v. Design Recovery Inc., [2002] OJ No 3628 (SCJ), one of the respondents was the plaintiff in an action against the applicants as defendants. The court agreed that the subject matter of the application was properly advanced by counterclaim in the existing action. Although slightly different than Lam and Diamond, in that there were additional parties in the second proceeding that were not already parties in the first action, the plaintiff in the action was a common party against whom the applicant/defendant was claiming. That is not the same here. Ivancroft has not claimed against 246 Ont.
(d) In Etco Financial Corp. v. Royal Bank of Canada, [1999] OJ No 3658 (SCJ), although the parties in the two proceedings were not the same, the respondent bank in the application was already a plaintiff in an existing related action. In that action, the defendants included the bank’s co-respondents. Although the applicant was not a party to the bank’s action, the bank consented to adding the applicant as a party so that it could counterclaim against the bank. Although this is factually the closest case to the circumstances of this matter, it is still not the same. 246 Ont and Khimasia are not proposing to add Khimasia as a plaintiff in 246 Ont’s action to permit a counterclaim.
[17] The outcome in each of these cases is consistent with my view of Rule 27, namely that the counterclaims are all being advanced against the plaintiff, including where other defendants by counterclaim are named. None of these cases involves a counterclaim only against a non-party to the first proceeding. I was directed to no case where the court has made such an order.
[18] Mr. Hochberg submits that he his office has previously issued counterclaims against only a new party, without claiming against the plaintiff. There is no evidence of that before me, but even if it is true, such a counterclaim would in my view be a procedural irregularity. A plain reading of the provisions in Rule 27 confirms that a plaintiff must be named in a defendant’s counterclaim for that counterclaim to be procedurally proper. In my view, if court staff have issued or do issue a counterclaim that does not name the plaintiff as a defendant by counterclaim, that is an error.
[19] Words have meaning in statutory interpretation. “Counter” as a verb is an act of opposition. “Counterclaim” is defined in various dictionaries in different ways, but the common element to all definitions is a form of opposing claim. A defendant may be entitled to “claim” against a non-party in relation to the subject matter of a claim brought against it, but it is illogical that they be entitled to issue a “counterclaim” without naming the party whose claim is being countered. The non-party has taken no position in the litigation adverse to the defendant that may be countered.
[20] Although not argued, Ivancroft’s claim against Khimasia may properly have been pursued by way of third party claim under Rule 29.01(b) or (c). They permit a third party claim against a non-party who is liable to the defendant for an independent claim for damages arising out of the same or related transactions or occurrences involved in the main action, or who should be bound by the determination of an issue arising between the plaintiff and the defendant.
[21] Regardless, in my view, it would be inconsistent with the plain language of Rule 27 to authorize a counterclaim against Khimasia in the absence of a counterclaim against 246 Ont. I do not accept that Rule 6.01(e)(ii) should be interpreted to permit something that would have been impermissible for Ivancroft to have done under Rule 27. No case law put before me supports such an interpretation. If the Legislature intended that defendants be entitled to sue non-parties by way of a counterclaim in isolation from counter-suing the plaintiff, then different language would be required than that found in Rule 27.
[22] There is no doubt that issues of fact and law are common between both actions, which is not disputed by Ivancroft. I agree that the actions should be dealt with together. I am not satisfied, however, that the order I am being asked to make is procedurally proper. For whatever reason, Ivancroft has elected not to pursue a claim against 246 Ont. In my view, I cannot force Ivancroft to now pursue a claim solely to make a counterclaim against Khimasia procedurally proper.
Is Ivancroft’s intention to move for security for costs a relevant factor in deciding consolidation?
[23] Although I am not granting consolidation, I still wish to address the submission that Ivancroft’s intention to seek security for costs from 246 Ont for the next phase of litigation is a factor militating in favour of consolidation.
[24] 246 Ont and Khimasia argue that, since the claim against Khimasia is, in essence, a counterclaim, it should be a factor in assessing whether security for costs is appropriate. I need not address the characterization of Ivancroft’s claim as a de facto counterclaim. I disagree that consolidation is necessary for 246 Ont to argue that Ivancroft’s claim against Khimasia is a relevant consideration in whether to order security for costs.
[25] Justness of an order for security for costs requires the court to examine all the circumstances and be guided by the overriding interests of justice in determining whether it is just that the order be made: Yaiguaje v. Chevron Corporation, 2017 ONCA 827 at para. 25. If 246 Ont feels that the related claim against Khimasia is relevant in assessing security for costs, then I fail to see how 246 Ont’s argument is not equally open to it whether or not Ivancroft’s claim is formally consolidated into 246 Ont’s action.
Should trial together be ordered and, if so, on what terms?
[26] Ivancroft has agreed to an order for trial together of the two actions, and submits that is the order I should make. 246 Ont and Khimasia insisted on arguing for consolidation. Since I am not granting that relief, an order for trial together is appropriate. I am thereby granting that alternative relief.
[27] Rule 6.01(2) provides that, when ordering consolidation or hearing together, the court may give such directions as are just to avoid unnecessary costs or delay. I am exercising my discretion to provide such directions.
[28] In 246 Ont’s action, Khimasia was examined on behalf of 246 Ont and is relying on many of 246 Ont’s defences in opposing personal liability to Ivancroft. Ivancroft’s position in both proceedings is effectively the same. Ivancroft thereby reasonably ought already to have been examined on most (if not all) of the matters relevant to disposition of Ivancroft’s action.
[29] In my view, it is appropriate that existing documentary and oral discoveries in 246 Ont’s action also stand as discovery evidence in Ivancroft’s action, with each party entitled to up to 90 minutes of additional examination time to address matters relevant in Ivancroft’s action that were not already examined upon in the prior examinations for discovery. The parties may agreed to extend that time.
[30] My specific directions are included in my order below. Any disputes or required clarifications may be addressed by arranging a case conference with me through my Assistant Trial Coordinator.
Costs
[31] There were no without prejudice offers to settle exchanged, so the parties made submissions on costs at the conclusion of the hearing in the event of being successful or unsuccessful. Ivancroft does not seek any costs of the motion in any event. 246 Ont and Khimasia seek their costs of the motions irrespective of the result. Even if unsuccessful on consolidation, they submit that costs should be awarded in their favour since the motions were necessary to compel answers to long-outstanding undertakings and to obtain an order for the two actions to be heard together.
[32] I have recently discussed general costs principles in my decision in CPI Security Services Inc. v. 2465855 Ontario Ltd., 2022 ONSC 200, at paras. 14-16. Costs are discretionary, with s. 131 of the Courts of Justice Act, RSO 1990, c. C.43 and Rule 57.01(1) of the Rules affording broad discretion to fashion a costs award that the court deems fit and just in the circumstances. Rule 57.01(1) sets out myriad of factors (and also a non-exhaustive list) to be considered by the court in exercising that discretion, which must be exercised in light of the specific facts and circumstances of the case. Rule 1.04(1.1), which requires the court to make orders that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding, is equally applicable in determining costs as it is in other aspects of litigation.
[33] The overriding principle in determining costs is reasonableness, with a view to balancing compensation of the successful party with the goal of fostering access to justice as applied to the factual matrix of the particular case. The quantum of costs awarded should reflect an amount the court considers to be fair and reasonable within the factual matrix of the particular case rather than any exact measure of the actual costs to the successful litigant.
[34] Strictly speaking, I agree that these motions were necessary (or at least one motion), but I am not satisfied that it was necessary or proportionate for an opposed hearing of the motions to have proceeded.
[35] With respect to Ivancroft’s undertakings, I accept 246 Ont’s submissions that Ivancroft failed to provide answers to undertakings within the 60 days required by the Rules, and only provided them once the motion was brought. While it does not exonerate Ivancroft from complying with its undertakings, I am mindful that 246 Ont also failed to answer its undertakings until approximately 7 months after its examination. Nevertheless, there is nothing in the record before me providing an explanation for Ivancroft’s failure to comply with its undertakings or why answers were not served until September 13, 2021, several months after they had been formally requested by 246 Ont’s counsel. Ivancroft’s obligation to answer undertakings was not contingent on 246 Ont first asking for them.
[36] The undertakings relief, though, is only a small part of these motions and, thereby, the costs incurred by 246 Ont. The substantive dispute was over consolidation. I agree that an order was necessary regardless of whether Ivancroft’s action was stayed pending disposition of 246 Ont’s action (as Ivancroft had proposed) or whether the two actions were consolidated or heard together (as addressed in these motions). However, Ivancroft agreed to trial together on September 13, 2021, which was before 246 Ont’s factum and any responding materials were prepared and served.
[37] Since I have not granted the consolidation relief strenuously pursued by 246 Ont and Khimasia, I do not view them as being successful in their primary requested relief. The secondary undertakings-related relief was resolved upon receipt of Ivancroft’s answers and supplementary affidavit of documents on September 13, 2021. Concurrently with providing those answers, Ivancroft’s counsel reiterated the prior proposal to stay Ivancroft’s action pending determination of 246 Ont’s action, but also confirmed that Ivancroft would agree to an order that Ivancroft’s action be heard following the hearing of 246 Ont’s action.
[38] If trial one after another had been agreed, then this motion could have proceeded on consent with no further substantive motion costs incurred. Instead, 246 Ont and Khimasia took a position that was not proportionate to the issues on the motion. Frankly, maintaining their position on consolidation appears to have been motivated by a strategic view that having Ivancroft’s claim against Khimasia formally framed as a counterclaim would better assist them in opposing an anticipated further security for costs motion against 246 Ont. As I have already commented, whether or not the claim against Khimasia is formally a counterclaim does not preclude its existence and relationship to 246 Ont’s action being raised in defence of any security for costs motion.
[39] I have granted substantially the same relief that Ivancroft acceded to on September 13, 2021. Essentially all post-September 13 costs incurred on both sides dealt with the consolidation dispute. It would thereby have been reasonable for Ivancroft to seek its costs from September 13, 2021 forward in reliance on its with prejudice position agreeing to have the two proceedings heard one after another. Nevertheless, it seeks no costs.
[40] In my view, 246 Ont (and perhaps Khimasia) would be entitled to some costs up to September 13, 2021, but I need not consider the quantum. I am satisfied that Ivancroft’s costs entitlement for successfully opposing the more substantive consolidation relief is greater than any costs to which 246 Ont and Khimasia would otherwise be entitled for the success on undertakings relief or necessary costs in bringing the consolidation and hearing together issue to a head. Since Ivancroft does not seek any costs, I find it fair and reasonable in the circumstances that each party bear their own costs.
Disposition
[41] For the foregoing reasons, I order as follows:
(a) The actions in Court File Nos. CV-19-614170 and CV-20-653635 shall be tried together, or one after another, as the trial judge may direct.
(b) Documentary and oral discoveries in Court File No. CV-19-614170 shall also stand as documentary and oral discoveries in Court File No. CV-20-653635 in accordance with the following:
(i) Unless Ivancroft and Khimasia serve affidavits of documents in Court File No. CV-20-653635 within thirty (30) days, Ivancroft’s and 246 Ont’s affidavits of documents in Court File No. CV-19-614170 shall be deemed to stand as the affidavit of documents of Ivancroft and Khimasia, respectively, in Court File No. CV-20-653635;
(ii) 246 Ont’s examination for discovery of Ivancroft in Court File No. CV-19-614170, including answers to undertakings, shall stand as Khimasia’s examination for discovery of Ivancroft in Court File No. CV-20-653635;
(iii) Ivancroft’s examination for discovery of Khimasia on behalf of 246 Ont in Court File No. CV-19-614170, including answers to undertakings, shall stand as examination for discovery of Khimasia in his personal capacity in Court File No. CV-20-653635.
(c) Notwithstanding subparagraph (b)(ii)-(iii) above, each of Ivancroft and Khimasia shall be entitled to conduct up to ninety (90) minutes of additional examination for discovery of one another in Court File No. CV-20-653635, subject to their agreement to extend that time.
(d) Any further examinations in accordance with subparagraph (c) above shall be completed within ninety (90) days, unless the parties agree to a later date, and shall not duplicate any examination already completed in Court File No. CV-19-614170.
(e) There shall be no costs of this motion.
(f) This order is effective without further formality.
ASSOCIATE JUSTICE TODD ROBINSON
DATE: January 18, 2022