Court File and Parties

COURT FILE NO.: CV-21-30

DATE: 2022-12-05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Laurie Joan MacPherson, Plaintiff

AND:

2155530 Ontario Inc. and Sutom Investments Inc., Defendants

BEFORE: Heeney J.

COUNSEL: Amaral Mendes, counsel, for the Plaintiff and the proposed Defendant-by-Counterclaim Terry Brake (responding party)

David Marcovitch, for the Defendant 2155530 Ontario Inc. (moving party)

HEARD: November 30, 2022 by videoconference

ENDORSEMENT

[1] This is a motion by the defendant 2155530 Ontario Inc. (“215”) to add Terry Brake (“Brake”) as a defendant-by-counterclaim, and to amend the Statement of Defence and Counterclaim to plead its case against him.

[2] The facts of the case are set out in detail in the endorsement of Grace J. dated July 7, 2022, which I do not propose to repeat. Unfortunately, that endorsement was in handwriting, and counsel have yet to have a typewritten version prepared. They would do well to do so.

[3] In short, Brake and the plaintiff were in a common law relationship. Brake allegedly made representations to 215, on his own behalf and that of the plaintiff, regarding, among other things, the profitability of a farming property and business which 215 was considering purchasing from the plaintiff, which induced 215 to enter into the transaction. The representations allegedly turned out to be false. It is also alleged that Brake and the plaintiff breached their employment contract (whereby they were going to operate the farming operation after closing), and failed to account for moneys earned. 215 also alleges that Brake and the plaintiff wrongfully removed property, breached their non-competition agreement, and made improper use of the trade name Canada Banana Farms.

[4] Brake was not included as a party in 215’s original Statement of Defence and Counterclaim, delivered August 6, 2021. However, in late 2001, the plaintiff brought a motion for summary judgment under r. 20, seeking the full balance owing under the Vendor Take Back mortgage, along with other relief. In response, 215 brought a cross-motion under “Rule 20 or Rule 21”, seeking summary dismissal of the plaintiff’s claims on the VTB. It also sought, in that motion, leave to amend its Statement of Defence and Counterclaim by adding Terry Brake as a defendant-by-counterclaim and making consequential amendments.

[5] The motions were heard by Carrington J. on March 30, 2022. However, he resigned from the bench not long after, and the motions were transferred to Grace J. for a rehearing. He determined that he was able to decide the motions on the written record, and did not require the reattendance of counsel for oral submissions.

[6] Grace J., in his reasons, focussed on the r. 20 motion for summary judgment by the plaintiff, and on the r. 21 motion by 215, and concluded that both claims depended on whether the termination provision in the Employment Agreement between the parties, which agreement was inextricably linked to the VTB, was engaged. After referring to the summary judgment test in Hyrniak v. Mauldin, 2014 SCC 7, he concluded that “the evidentiary record is incomplete. Credibility and reliability issues abound”. For those reasons, he dismissed both motions.

[7] He did make one comment that is relevant to the motion before me, and which is relied upon by Brake to resist the motion to amend. At para. 31 he said this:

Before ending I will briefly address one tangential issue raised on 215’s behalf. 215 alleges untrue representations were made in the pre-contractual setting concerning the financial performance of the farm operation that induced 215 to buy. Leaving everything else aside, including merger, where exactly is such a representation in the agreement of purchase and sale? I reviewed the lengthy document and could not find it. That argument would not have carried the day.

[8] I will address the significance of those comments below.

[9] The present motion of 215 is brought under r. 26.01, which reads as follows:

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.

[10] Rule 5.03 deals with the addition of necessary parties. Subrules (1) and (4) provide as follows:

5.03 (1) 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.

(4) 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.

[11] The wording of r. 26.01 is mandatory. The amendments “shall” be granted unless there is non-compensable prejudice.

[12] Rule 5.03 is not in mandatory terms, and gives discretion to the court as to whether or not to add a party. However, in Mazzuca v. Silvercreek Pharmacy Ltd., 2001 8620 (ON CA), [2001] O.J. No. 4567 (CA) at para. 84, Laskin J.A. said:

Absent non-compensable prejudice, these motions should ordinarily be granted. The court retains a discretion to refuse the motion, but that discretion should not be invoked often.

[13] In the same case, at para. 25, Cronk J.A. quoted with approval a passage from Holmested and Watson, Ontario Civil Procedure, Volume 2 (Carswell: 1993) that provides guidance on the factors to be considered by the court in exercising that discretion. It says, in part:

… the discretion is to ensure procedural fairness and consideration has to be given to such matters as the state of the action, whether the trial is imminent, whether examinations for discovery of all parties have already been held, whether it would be a proper joinder of a new cause of action, whether the purpose in adding a party defendant was improper (such as simply to obtain discovery of the party added), whether the proposed added party was a necessary or proper party, and whether a variety of special rules were observed such as those respecting class actions, representation orders, trade unions, assignees, insurance, trustees, infants, persons under disability, amicus curiae, accrual of the cause of action and limitations).

[14] In the case at bar, the action is still at the pleadings stage. No documentary or oral discovery has yet taken place, and the parties are probably years from a trial.

[15] In Schembri v. Way, 2012 ONCA 620 at para. 26, Feldman J.A. noted the following practical result of granting such an amendment:

There is neither an allegation of prejudice nor a limitation period issue here, and the action is at an early stage. The plaintiffs could commence a new action against the proposed defendants and then seek to join it with the existing action. The procedure of adding parties to the existing action circumvents the costly and time-consuming process involved in that procedure.

[16] Counsel for Brake, in their factum, argued that the proposed claim for misrepresentation was statute barred, because the closing on the sale occurred on or about July 9, 2020. However, in our discussions during argument, it became obvious that the limitation period would not begin to run until the falsity of the representations was discovered by 215. There is nothing in the record as to when that occurred, so discoverability remains a live issue. For that reason, this argument was not pursued.

[17] The other argument raised by Brake was that the same motion had already been dismissed by Grace J. in his ruling on the earlier motion. Thus, it was a matter of res judicata. It is, Brake submitted, an abuse of process for 215 to bring a motion again that had already been dismissed, and thereby attempt to relitigate the same issues.

[18] The constituent elements of estoppel by res judicata are set out in Bullen Estate (Re), 1971 1029 (BC SC), [1971] B.C.J. No. 102, at para. 9:

The constituent elements of the estoppel by res judicata which must be established by the party raising that defense are set out in The Doctrine of Res Judicata by Spencer Bower and Turner (2nd Edition) at page 18, as follows:

"(i) that the alleged judicial decision was what in law is deemed such;

(ii) that the particular judicial decision relied upon was in fact pronounced, as alleged;

(iii) that the judicial tribunal pronouncing the decision had competent jurisdiction in that behalf;

(iv) that the judicial decision was final;

(v) that the judicial decision was, or involved, a determination of the same question as that sought to be controverted in the litigation in which the estoppel is raised;

(vi) that the parties to the judicial decision, or their privies, were the same persons as the parties to the proceeding in which the estoppel is raised, or their privies, or that the decision was conclusive in rem.

[19] Here, Brake was not served with the 215’s first Notice of Motion. Although he swore an affidavit that was used in the plaintiff’s materials, he did not appear by counsel or otherwise participate in the motion. Accordingly, the requirement that the parties, or their privies, be the same in both proceedings has not been met.

[20] More importantly, it is evident from reading the reasons of Grace J. that he pronounced no decision on 215’s request to add Brake as a party. In his summary, found under subtitle “C: The motions”, he did not refer to 215’s request to amend its pleadings and add a party. He cited no relevant rules, and engaged in no analysis of the issues relevant to such a claim.

[21] The only reference to that aspect of 215’s motion was what Grace J. himself described as a “tangential issue”, quoted above at para. 7. It is clear that he was speaking about the “entire agreement” clause found at para. 26 of the Agreement of Purchase and Sale, and correctly observed that 215 would face an uphill battle on this issue. In saying “that argument would not have carried the day”, I infer he was saying that, had that issue been argued, he would not have been persuaded of 215’s position.

[22] Furthermore, misrepresentation was only one of several claims that 215 makes against Brake in its proposed Statement of Defence and Counterclaim. Those other claims were not even mentioned, let alone ruled upon.

[23] The simple reality is that Grace J. made no decision at all on 215’s request, in its Notice of Motion, that Brake be added as a party and that 215’s pleadings be amended accordingly. The present motion does not involve the “determination of the same question” decided by Grace J., because he did not address and decide that question. Given the lack of any ruling on that issue, there was no “final” decision that determined the matters now before the court.

[24] I conclude that res judicata has no application here.

[25] While 215 may well have problems proving its case, this is not the time to make that determination. This is a pleadings motion, not a summary judgment motion.

[26] I am satisfied that Brake’s presence and participation is necessary to enable the court to adjudicate effectively and completely on the issues framed in the pleadings. I am similarly satisfied that by adding him as a party, and granting leave to amend 215’s pleadings accordingly, no prejudice would result that could not be compensated for by costs or an adjournment.

[27] Accordingly, 215’s motion is allowed, as requested in para. 1 of its Notice of Motion.

[28] With respect to costs, 215 comes to the court seeking an indulgence, in that it is asking for leave to do what it should have done when it initially prepared and served its Statement of Defence and Counterclaim. Successfully obtaining the court’s indulgence to correct a party’s error hardly amounts to a victory that should be rewarded with an order for costs.

[29] At the same time, Brake has unsuccessfully resisted the motion, which equally disqualifies him from an award of costs.

[30] In the result, there will be no costs of this motion.

Mr. Justice T. A. Heeney

Date: December 5, 2022