Court File and Parties

DATE: 20220209

ONTARIO SUPERIOR COURT OF JUSTICE

RE: NATIONAL INDUSTRIES INC. and NATIONAL STEEL CAR LIMITED, Plaintiffs

-and-

PETER KIRKWOOD and MARSH CANADA LIMITED, Defendants

BEFORE: FL Myers J

COUNSEL: Earl A. Cherniak, Q.C., Jerome R. Morse, and David Trafford for the Plaintiffs

Robert W. Traves, David H. Elman, and Natalie D. Kolos, for the Defendants

HEARD: February 7, 2022

ENDORSEMENT

The Motion

[1] In 2017, the plaintiffs sought to amend their statement of claim to claim damages in relation to acts committed by the defendants in 2008 and 2009. In a decision dated June 23, 2017, reported at 2017 ONSC 4196, Jolley AJ (then, Case Management Master Jolley) denied the request for leave to amend.

[2] The decision refusing leave to amend was a final decision. It ended the plaintiffs’ efforts to plead the proposed causes of action on the facts that occurred in 2008 and 2009. Therefore, their appeal lay to the Divisional Court pursuant to s. 19 (1)(c) of the Courts of Justice Act, RSO 1990, c C.43.

[3] By order dated March 6, 2018, with reasons reported at 2018 ONSC 1490, Koehnen J dismissed the plaintiffs’ appeal.

[4] By decision dated July 6, 2018, the Court of Appeal denied leave to appeal to that court from the decision of the Divisional Court.

[5] The plaintiffs now submit that their original, unamended statement of claim already includes claims for the acts committed by the defendants in 2008 and 2009 that were the subject matter of their unsuccessful motion for leave to amend. They submit that the Case Management Master simply ruled on whether to grant leave to amend. A Case Management Master (and now an Associate Justice) has no authority to rule on the legal sufficiency of an existing statement of claim under Rule 21.01 (1) of the Rules of Civil Procedure, RRO 1990, Reg. 194. The plaintiffs submit that she cannot be taken to have limited the meaning of their pre-existing claim.

[6] The defendants submit that the plaintiffs are bound by the doctrines of res judicata, issue estoppel, and abuse of process and cannot relitigate the issues already determined by the Case Management Master and the Divisional Court Judge. They move to strike out the plaintiffs’ undated Response to Demand for Particulars and paras. 3 to 7 of the plaintiffs’ undated Reply.

[7] For the reasons that follow, I agree with the defendants and grant the relief sought.

The Basic Facts

[8] I recite only the facts needed to frame the issues. I borrow liberally from the plaintiffs’ factum to do so.

[9] The plaintiff National Steel Car Limited is a steel rail car manufacturer in Hamilton, Ontario. National Industries Inc. is its parent company. They decided to build a new steel rail car facility in Colbert County, Alabama in 2007.

[10] The defendant Marsh Canada Limited is the plaintiffs’ insurance broker. Peter Kirkwood is the Marsh employee who provided insurance broker services to the plaintiffs since 2003.

[11] In and around 2007 the plaintiffs began to undertake the design and construction of the new plant in Alabama. At the time and up to January 2011, the plaintiffs had purchased, through their broker, $10 million of D&O insurance coverage with GCNA.

[12] In 2007, the plaintiffs incorporated a new wholly-owned US subsidiary to build and operate the proposed plant in Alabama. The subsidiary borrowed USD $350 million for construction of the plant. The US subsidiary was insured with the same $10 million D&O coverage.

[13] Greg Aziz is the principal of the plaintiffs. He became CEO of the US subsidiary too.

[14] After the global credit crunch in 2009, the plaintiffs’ US subsidiary increased its construction loan to USD $650 million. In addition, its lender became a 20% shareholder in the company.

[15] Later in 2009, the lender became dissatisfied and sought the removal of Mr. Aziz as CEO of the US subsidiary that was building the rail car plant. Mr. Aziz resigned from the position in August 2010.

[16] In 2010 and 2011, the plaintiffs sought to increase their insurance coverage to $70 million. They allege that Mr. Kirkwood told them that as part of their effort to renew and to seek increased insurance coverage, they did not have to disclose to the insurer the problems in the US company or to give the insurer notice of circumstances that could give rise to a future claim on the D&O policy.

[17] In 2013, Mr. Aziz was charged with securities fraud offences in the US. He settled with authorities by agreeing to pay USD $22 million.

[18] The insurer has refused to indemnify the plaintiffs for the settlement payment. It has denied coverage due to the plaintiffs’ failure to disclose facts and circumstances concerning the financing and construction of the US plant including Mr. Aziz’s removal as CEO.

The Motion Decisions

[19] Before the Case Management Master, the plaintiffs sought to add claims both in relation to the 2010 – 2011 renewal and expansion of D&O coverage and also for allegations of negligence relating to the 2008 – 2009 time frame. The defendants consented to the amendments related to events around the coverage renewal and expansion in 2010 and 2011. But they objected to the proposed amendments relating to events in 2008 and 2009. The defendants argued that those claims were barred by the Limitations Act, 2002, SO 2002, c 24, Sch B.

[20] For the purposes of the motion to amend, counsel for the plaintiffs accepted that new claims related to the 2008 – 2009 period were out of time. Instead, they submitted that the claims were already contained in the existing pleadings.

[21] Both sides relied upon uncontroversial law that provides that amendments will be allowed outside the limitation period as long as the cause of action on which the amendments are based was already pleaded before the expiry of the limitation period. See: Bank of Montreal v. Morris, 2013 ONSC 2884, at para 46; Martin v. St Thomas Elgin General Hospital et al., 2016 ONSC 294, at para 17.

[22] The only question before the Case Management Master therefore, was whether the existing, unamended statement of claim already contained allegations of fact sufficient to plead causes of action in relation to events pleaded in 2008 and 2009.

[23] At paras. 16 and 17 of her decision, Case Management Master Jolley found:

[16] The plaintiffs' position is that they have pleaded negligence against the defendants for advice given or not given concerning their D&O coverage throughout the history of their client/broker relationship with the defendants and that they are now just particularizing the allegation and not adding any new cause of action, They take the position that the amendments simply amount to a different legal conclusion drawn from the same set of facts (Bank of Montreal v. Morris 2013 ONSC 2884 al para 46). I disagree.

[17] Reading the claim generously, I find that the proposed new allegations do not arise from the same factual matrix. It is clear from the pleading excerpts below that the factual matrix relates to the denial of coverage of the Settlement and the negligence alleged against the defendants concerns the placing of the D&O insurance policies in 2010 and 2011. [Emphasis added.]

[24] This is a finding of fact or mixed fact and law. It is mixed only to the extent that the Case Management Master had to apply her understanding of the definition of a cause of action. But having rightly set about looking to see if, on the facts, the existing statement of claim already contained allegations amounting to legally cognizable claims for 2008 and 2009, she made, in essence, an extricable finding of fact that it does not do so.

[25] There is no question that the original statement of claim recited facts from the pre-2010 period. But the Case Management Master found that those facts supported the claims made in relation to the defendants’ conduct in 2010 and 2011. She held that the facts pleaded in the original, unamended statement of claim did not amount to a pleading of causes of action for anything done or not done prior to the renewal discussions in 2010 and 2011.

[26] Case Management Master Jolley repeated the finding at para 20 of her Reasons, as follows:

The facts surrounding this claim of negligence referable to the 2008 and 2009 coverages are not in the existing statement of claim…

[27] On appeal, Justice Koehnen reiterated the applicable law and found:

[16] The Master read the original statement of claim as alleging negligent conduct in 2010 and 2011. I agree with that reading.

[28] After reviewing the existing pleading with reference to many of the same paragraphs to which I was referred during the hearing of this motion, Koehnen J found:

[37] The proposed amendments do not provide particulars of an allegation already pleaded but make allegations of new acts of negligence in 2008 and 2009. The amendments do not arise from the same "core factual nexus" as the original claim. One cannot fairly say that the "core factual nexus" is the client broker relationship and that particular allegations of negligence in respect of that relationship for 2010 and 2011 would also shelter allegations that are raised subsequently about conduct in 2008 in 2009.

[29] The plaintiffs now say that the original statement of claim does indeed include causes of action related to the events of 2008 and 2009. Doing so is directly contrary to the findings made by Case Management Master Jolley and Justice Koehnen who found that the original statement of claim does not plead causes of action related to the events in 2008 and 2009.

Procedural Facts

[30] The plaintiffs waited three years to actually make the amendments to the statement of claims in relation to 2010 and 2011 which had been allowed on consent. The defendants’ counsel say that they were concerned when they saw that the plaintiffs had not made all the amendments that they had been allowed to make. They left out one in particular that on its face limited the time frame of the claim to 2010 and 2011. The defendants therefore served a brief Demand for Particulars seeking to flesh out the time frame that the plaintiffs asserted were covered by the statement of claim.

[31] The plaintiffs responded with a very lengthy, undated Response to Demand for Particulars. It lists many references to the pre-2010 time period in the statement of claim to support the plea:

In response to the Demand for Particulars… the time frame for all these allegations …as pleaded in the Amended Statement of Claim in the paragraphs set out below, in the period 2007 through to and including 2011: [Emphasis added.]

[32] Later in the Response to Demand for Particulars, the plaintiffs pleaded that they relied on specified portions of the defendants’ examinations for discovery, “in support of the claim that the Defendants were negligent and breached contractual and fiduciary duties between 2007 through to and including 2011 and that the Defendants.” [Emphasis added.]

[33] Rather than simply coming to court, the defendants responded with an amended statement of defence on November 9, 2021. IN it, they objected to the plaintiffs purporting to claim that the statement of claim includes causes of action from 2008 and 2009. In addition they pleaded that any such claims are barred by the Limitations Act, 2002.

[34] The plaintiffs then delivered an undated Reply. In para. 2 of the Reply, the plaintiffs plead the issue of discoverability to answer the defendants’ plea of the limitation period. In paras. 3 to 7 of the Reply, the plaintiffs plead that the decisions of Case Management Master Jolley and Koehnen J did not determine the issue of the limitation period related to the original statement of claim.

Analysis

[35] The plaintiffs submit that the decision made by Case Management Master Jolley was simply a refusal to allow the statement of claim to be amended. In making that order, she could not assess the legal sufficiency of the statement of claim or the applicability of the limitation period to the claims already pleaded. They submit that it is in a near inviolable right of the trial judge to determine the scope of the pleadings at trial. A decision by a Case Management Master or an Associate Judge on a pleadings motion cannot fetter the trial judge’s authority to interpret the pleadings at trial.

[36] The plaintiffs rely on no authority for the position that the trial judge has a near inviolable right to interpret the scope of the pleadings. Mr. Cherniak submits that the formal order governs and the only thing that the Case Management Master ordered was the dismissal of the motion for leave to amend the claim. He relies on case law in which appellate courts have stated that an appeal is from a judge’s order and not her reasons. That is correct without doubt. But it is also irrelevant. That principle deals with a party’s lack of entitlement to appeal from a finding in a judge’s reasons that does not contribute to the ultimate outcome. Of course the actual findings in a judge’s reasons matter. The whole process of assessing an appeal under the appellate standard of review is concerned with determining whether, in her analysis as evidenced by her reasons, the judge made any errors of law or palpable and overriding errors of fact or mixed fact and law which led her to make the order under appeal.

[37] For a judge or an Associate Judge to make any order, there are always findings of fact and law required. The necessary findings may be set out in a statute, a rule, or the common law for example. In this case, for Case Management Master Jolley to determine whether to grant leave to the plaintiffs to amend their statement of claim, the common law that has developed under Rule 26 required her to determine whether the original statement of claim already set out the facts that amounted to a cause of action for the events that occurred in 2008 and 2009. That was the question that was before her. That was the question she answered. And that was the answer that Koehnen J found to be correct.

[38] Counsel for the plaintiffs submitted that the trial judge is entitled to disagree with this finding and hold that the statement of claim does indeed plead causes of action from 2008 and 2009.

[39] In my view, inviting that outcome is inappropriate legally and also practically.

[40] A defendant does not have to get to trial to discover the causes of action pleaded against him or her. One of the main purpose of pleadings is to give notice to the parties about what is and is not in issue in the case from the get-go. Pleadings set the issues from the very outset of the case. They define the scope of document production and oral examinations for discovery. They define the issues that have been joined and are to be proven at trial.

[41] Here, the court has already ruled that the statement of claim does not assert causes of action in relation to the facts pleaded in 2008 and 2009. The plaintiffs are not free to ignore this holding.

[42] The doctrine of issue estoppel precludes a party from questioning or relitigating any right or fact that has already been found against him on a final basis in a proceeding between the same parties. Almrei v. Attorney General of Canada, Towaij, 2011 ONSC 1719, at para. 28.

[43] The plaintiffs rely on the following statement by Lederman J in Almrei:

[31] Only those issues fundamental to the original judgment can ground the operation of estoppel. As stated above, these fundamental issues may be in the form of a "right, question, or 2011 ONSC 1719 fact" (Mcintosh at 422, as cited by Danyluk at 476). If a right, question or fact was an essential and fundamental step in the logic of the prior decision, issue estoppel may arise with respect to that issue in the new, but distinct, cause of action (Kaymar Rehabilitation Inc v Champlain Community Care Access Centre, 2010 ONSC 2248 at para 184 [Kaymar]).

[32] Different causes of action in separate proceedings may have one or more material facts in common. Justice Binnie provides the example in Danyluk: the existence of an employment contract was a material fact common to the proceeding in front of the tribunal and the subsequent proceeding in court. This material fact, once found, is largely protected from re-litigation by issue estoppel, absent any special circumstances.

[33] The first task is to determine which of these rights, questions or facts contained in Justice Mosley's decision are essential or fundamental to his judgment. Once the fundamental facts are identified, the question will become whether these important findings comprise the same with respect to the allegations in this motion.

[44] I accept that statement of the law completely. As I find that the fundamental holding made by Case Management Master Jolley and upheld by Koehnen J was that the original, unamended claim does not contain any causes of action relating to 2008 and 2009, the plaintiffs cannot now assert otherwise. The amendments made on consent concerning 2010 and 2011 do not affect that outcome.

[45] To go to court at trial and ask the trial judge to find that a pleading that has already been held not to contain a particular cause of action suddenly does include it, turns the rules upside down. How is a defendant to go through discovery and prepare for trial if prior decisions on the meaning and scope of the pleadings do not bind the parties in the proceeding?

[46] The plaintiffs’ assertion also deprives the Case Management Master’s final decision of its finality. In Skunk v Ketash, 2018 ONCA 450, the Court of Appeal dealt with circumstances in which a judge’s decision can be unclear as to whether it is interim or final. A judge may refuse summary judgment, for example, because she is not convinced that a contract existed. But the actual decision of the judge was not, “no contract exists” but that, “there is a triable issue as to whether a contract exists”. Rule 20 anticipates that in dismissing a motion for summary judgment, a trial is likely.to be required. While there can be final decisions made in dismissing a motion for summary judgment, the Court of Appeal found that this was exceptional and needs to be specifically noted in the judge’s decision and order. Normally, the dismissal of a motion for summary judgment is just an interlocutory decision that a trial is required rather than a final decision on any particular fact or substantive issue.

[47] The plaintiffs rely on Rule 20.05 (3) that allows a trial judge to depart from facts found by a motion judge on summary judgment. The Rule provides that to prevent injustice a trial judge may depart from facts deemed established under sub-rules 20.05 (1) and (2)(c). Those sub-rules allow a motion judge to set out facts that are not in dispute for the trial or to order the parties to do so. But this power only arises on the dismissal of a motion for summary judgment. That is, by definition, the deeming of facts not in dispute is done in the absence of sufficient evidence or procedural fairness to allow the motion judge to make final rulings.

[48] A rule clarifying that a trial judge is not bound by interlocutory determinations of a motion judge is completely consistent with the ordinary and corollary understanding that the parties and the court are indeed bound by final rulings of sufficient import and finality as described in Almrei..

[49] The plaintiffs also rely on the decision of Hugesson J in Paszkowski v. Canada, 2001 CanLII 22070 (FC):

[3] The plaintiff says that that is res judicata to which Mr. Lester replies no, it cannot be res judicata because it is an interlocutory order and, of course, is subject to further review. And in my opinion they are both right. It seems to me that what one has to ask oneself when asking whether or not there is res judicata is: "what did the Court actually decide the first time around?" Here, there is no doubt that the Court, the first time around, actually decided that on the material before it, at that time, the plaintiff had a serious case to be argued. That is incompatible with any finding that the action is frivolous, vexatious or an abuse of process.

[50] The plaintiffs say that all the Case Management Master found was that the proposed amendments could not be made. But they ignore the next paragraph in Paszkowsli in which Hugessen J continued:

[4] That decision is not res judicata in the sense that it was open to the defendant to move for summary judgment and will remain open to the defendant at trial to lead other evidence and to bring further arguments to bear which may persuade a judge that the action should be dismissed. It is res judicata in the sense that no application can be made today based on the same materials as were before Mr. Justice Rouleau inviting the Court to arrive at a contrary conclusion to the one reached by him.[Emphasis added.]

[51] But this is exactly what the plaintiffs are doing. They took me to the same paragraphs as they showed to Case Management Master Jolley and Koehnen J and asked me to find that they do assert a cause of action for events in 2008 and 2009 or to leave it open to the trial judge to find that to be the case. And that is precisely what Lederman J and Huggesson J say is precluded by the doctrine of issue estoppel.

[52] The plaintiffs submit that there is always a discretion to not apply res judicata or issue estoppel in appropriate circumstances. In Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44 at para. 62, the Supreme Court of Canada determined that the discretion has “very limited application”. It is designed to prevent injustice through the preclusive effect of issue estoppel or abuse of process. In Almrei, at para. 52, Lederman J considered factors such as:

…the text of the relevant statute, purpose of the legislation, procedural differences, the availability of an appeal, expertise of the decision maker, circumstances giving rise to the prior proceeding (discussed previously), and any potential injustice.

[53] The plaintiffs have not provided any basis to refrain from enforcing issue estoppel or abuse of process in this case under Rule 21.01 (3)(d) or 25.11. See: Arconti v. Fenton, 2020 ONCA 489 at para. 16. The prior decisions at issue were decisions of the court on matters directly put before it by the parties in this very action. The plaintiffs waived the question of whether the Limitations Act, 2002 applied to 2008 and 2009 causes of action for the purposes of the motion. That left the Case Management Master with only the very question that the plaintiffs now raise – whether the original statement of claim includes causes of action arising from the facts asserted in 2008 and 2009? The Case Management Master decided that question. The decision was intended to have final effect and was understood to have final effect (as the appeal route demonstrates).

[54] The plaintiffs submit that it is unfair for a Case Management Master’s decision on a motion to amend a pleading to bind the trial judge’s determination of the meaning of the pleadings before her. First, the decision binds the parties. The ruling was that the plaintiffs did not plead causes of action concerning the 2008 and 2009 facts. I am holding them to that finding. Trial judges receive the parties’ pleadings in the trial record. They hold a trial based on the pleadings they receive. I see nothing unfair in holding the statement of claim to mean only what it has been found to mean. Words have a meaning. A fair process cannot abide a change in the meaning of the same words amid stream. Doing so would render the motion and appeal a waste of time. It would favour surprise and ever-shifting issues instead of certainty by fair notice.

[55] In this case, three years went by before the plaintiffs disclosed that they were re-treading the same issue that had already been decided against them by the Case Management Master and the Divisional Court. That is not a fair, efficient approach or one that recognizes the finality of final decisions.

[56] The plaintiffs submit that all of the evidence from 2008 and 2009 will be adduced at trial in any event. They submit that there is no prejudice to the defendants as they will be entitled to defend at trial based on the same arguments of res judicata, issue estoppel, and abuse of process. I disagree. The action claims professional negligence. Expert evidence concerning the standard of care in the industry will almost certainly be required. It is not fair to the defendants to leave them to find out at trial that despite the holdings that there are no claims from 2008 and 2009 pled in the statement of claim, there will be additional causes of action raised against them at trial that require expert evidence. Nor is that process consistent with the Rules concerning the timing of delivery of experts’ reports or the efficient scheduling of trials in this court.

[57] On the plaintiffs’ theory, all final orders for pleadings can be re-visited by the trial judge under her inviolable right as trial judge. I do not understand that to be the either the law or a desirable outcome.

Outcome

[58] The Case Management Master did not find that the statement of claim sets out (or fails to set out) a reasonable cause of action as a matter of law under Rule 21.01. Rather, she determined that factually the statement of claim does not contain allegations that amount to causes of action in relation to the facts pleaded from 2008 and 2009.

[59] The plaintiffs are bound by this finding of fact or mixed fact and law. They are precluded from disregarding it. Accordingly, the Response to Demand for Particulars is struck out as an abuse of process or for breach of the doctrine of issue estoppel. So too are paras. 3 to 7 of the Reply.

[60] Para. 2 of the Reply pleads discoverability. That plea can survive against a limitation defence to the action as pleaded in relation to events from 2010 and 2011. If the limitation period is not pleaded by the defendants in relation to the 2010 and 2011 claims, then para. 2 of the Reply would seem to be irrelevant.

[61] The plaintiffs have not pleaded any cause of action in relation to the events referred to in the statement of claim in 2008 and 2009. Discovery was held on that basis. Trial preparation will proceed on that basis. Absent an amendment, nothing said or done by the plaintiffs in this proceeding can change the meaning of the statement of claim as previously and finally determined.

Costs

[62] The defendants are entitled to their costs on a partial indemnity basis. They claim $23,743.77 all-in. The plaintiffs claimed $79,100 also on a partial indemnity basis. The costs claimed by the defendants are approximately thirty percent (30%) of those claimed by the plaintiffs. Yet it was the defendants who bore the documentary heavy lifting on this motion. I have reviewed the Costs Outline of the defendants and find the hours claimed and the rates sought to be well within market and reasonable. In light of the costs incurred by the plaintiffs by comparison, there is no access to justice issue raised by requiring the plaintiffs to pay the defendants their reasonable costs as claimed and I therefore do so.

FL Myers J

Date: February 9, 2022