Court File and Parties

Court File No.: CV-19-628838 Date: July 28, 2023

Superior Court of Justice - Ontario

Re: Gowing Contractors Ltd. v. Walsh Construction Company Canada, Walsh Construction Co., City of Toronto and Toronto Port Authority;

Before: Associate Justice C. Wiebe

Counsel: Richard Yehia for Gowing Contractors Ltd. and Zurich Insurance Company Ltd. Faren Bogach for Walsh Construction Company Canada and Walsh Construction Co.

Heard: June 8, 2023.

Reasons for Decision

[1] This is a motion by Zurich Insurance Company Ltd. (“Zurich”) and Gowing Contractors Ltd. (“Gowing”) for further and better production from the defendants Walsh Construction Company Canada and Walsh Construction Co. (together “Walsh”), and for leave to amend the Gowing and Zurich pleadings. I heard argument on the motion on June 8, 2023. The following is my decision and the reasons for it.

Background

[2] I gleaned the following undisputed, background facts from the motion material and from my trial management directions.

[3] The underlying project concerned extensive upgrade and odour control work at the Ashbridge’s Bay Wastewater Treatment Plant. The owner is the City of Toronto (“the City”). In 2013 the City hired Walsh as the general contractor for the project. Walsh hired Gowing as its mechanical subcontractor. This will be called “the Subcontract.” Gowing’s bonding company, Zurich, provided Walsh with two bonds, a labour and material payment bond (“Payment Bond”) and a performance bond (“Performance Bond”).

[4] Gowing ceased working on July 31, 2019. On August 20, 2019 Gowing registered a claim for lien in the amount of $15,833,317.12 and commenced this lien action on October 9, 2019. This action will be called the “Gowing Lien Action.” Walsh delivered a statement of defence.

[5] Three civil actions were commenced. On March 5, 2020 Walsh commenced a civil action against Gowing (CV-20-637505) claiming damages for breach of contract causing delay and completion costs on the project. Gowing defended that action. Initially, Gowing included a counterclaim, but that counterclaim was removed in June, 2021 pursuant to my consent order. This action will be called the “Walsh Civil Action.”

[6] On July 20, 2020 Walsh commenced a civil action against Zurich (CV-20-642913) pursuant to the Performance Bond. Zurich defended that action without including a counterclaim. This action will be called the “Walsh Bond Action.”

[7] In September, 2020 Walsh commenced a civil action against the City (CV-20-647248) wherein Walsh claimed that the City delayed the project by excessive change orders and a failure to identify contaminated soil. This will be called the “Walsh City Action.” The Walsh City Action was settled before pleadings closed.

[8] A judgment of reference in the lien proceedings was obtained in another lien action. I became seized of the lien reference at the first trial management conference on October 19, 2020. At this trial management conference I created streams, one of which included the claims of Gowing and three of its subcontractors. The claims of the three subcontractors were subsequently resolved.

[9] At the fifth trial management conference in this stream on March 29, 2021 I made orders for interlocutory steps. One of these orders was for the parties to agree on a discovery plan that dealt with all issues of electronic production including the custodians to be searched and the search protocols to be applied. I imposed deadlines for this plan and the delivery of affidavits of documents. I made orders for examinations for discovery including a deadline for same.

[10] The parties had difficulty agreeing on a discovery plan. On May 25, 2021, Ms. Bogach sent an email to Richard Hammond, Gowing’s lawyer at that time, suggesting a “detailed discovery plan” to avoid a multiplicity of discoveries and undertakings. By reply email Mr. Hammond rejected this approach, stating that “we see no obvious [w]ay to short circuit or limit the scope of production.” At the request of the parties, I convened a case conference on May 25, 2021. Mr. Yehia was present for Zurich. The parties indicated they had overcome their differences. As no order was issued, I made no written summary. However, my notes indicate that Mr. Hammond reiterated that there needed to be a “broad scope of relevance.”

[11] On June 8, 2021 the parties, including Zurich, signed a discovery plan. The document indicated that the parties had consulted and had regard for The Sedona Canada Principles and the principle of proportionality. Concerning the scope of production, the document was vague. It just required that relevant documents (as defined by the pleadings) be produced and that, upon request, the parties were to make best efforts to retrieve relevant documents from third parties. There were no search terms to be applied and no lists of specific custodians to be searched.

[12] The parties did not comply with my deadlines for affidavits of documents and discoveries. In October, 2021 Gowing produced 128,921 documents. In November, 2021 Walsh produced 775,276 documents. In June, 2022 Walsh produced 162 documents. In August, 2022 Walsh produced 268,611 documents. In October, 2022 Gowing produced 12,732 documents. In October, 2022 Zurich produced 311 documents. Draft affidavits of documents were delivered, not sworn ones. Discoveries did not take place. However, during this time the two extant Walsh civil actions were referred to me on consent for management and trial.

[13] At the next trial management conference on October 11, 2022, I was briefed on this status. No one, including Mr. Yehia, complained of the non-compliance with directions. I was told that Gowing had to make further productions. I was told that the parties had agreed to a two-day mediation on November 28 and December 12, 2022. I made orders facilitating the mediation. I also ordered further Gowing production and rescheduled the discoveries for the weeks of March 20 and 27, 2023 and April 4, 2023 should the mediation fail.

[14] There was a dispute between the parties about production and other issues leading to the mediation. At Ms. Bogach’s request, I convened a trial management conference on November 14, 2022. The parties reached an agreement as to disclosure for the mediation which I incorporated into an order. The mediation proceeded, but failed.

[15] On January 20, 2023 Gowing hired Mr. Yehia as its lawyer. On that day Mr. Yehia wrote a letter to Ms. Bogach criticizing Walsh’s production of a huge number of irrelevant documents and the lack of Walsh production of documents concerning Walsh’s delay claim against the City and its settlement, and Walsh’s alleged harassment and discrimination of Gowing’s principal, Jane Gowing. Mr. Yehia demanded the disclosure of the Walsh search terms. He enclosed draft amended Gowing pleadings in the Walsh Civil Action and the Walsh Bond Action, and asked for Walsh’s consent to the amendments. He threatened a motion.

[16] On January 31, 2023 Ms. Bogach responded with a letter. She refused to consent to the draft pleading amendments citing a limitation defence. Concerning production, she said that Walsh had chosen an “error bias in favour of inclusion.” She admitted that Walsh conducted an internal investigation of the Gowing discrimination and harassment allegations, but stated that this investigation was not finished and was confidential.

[17] At Mr. Yehia’s request, I convened a trial management conference on February 6, 2023 to schedule the Gowing Zurich motion. I scheduled the motion. In addition, Mr. Yehia wanted me to postpone the scheduled discoveries given the amendments motion and the alleged problems with the Walsh productions. Ms. Bogach vigorously opposed this request arguing that this had not been the position of Gowing’s previous lawyer who sought no amendments and who agreed to the discovery schedule after having had possession of the Walsh documents for numerous months. I sided with Ms. Bogach, as it appeared to me that the postponement request was a byproduct of Gowing’s change of lawyers and that there was a need at least to start discoveries in this much delayed reference, regardless of the motion.

[18] On February 23, 2023 Walsh produced a document called “Request for Extension of Time & Impact Costs.” This was the claim document that Walsh submitted to the City and that formed the basis for the settlement discussions with the City. This will be called the “EOT Report.” Curiously, not all the exhibits to the EOT Report were produced.

[19] In mid-February, 2023 Walsh discovered that many additional documents had to be produced. It waited until March 8, 2023, shortly before the scheduled discoveries, to have Ms. Bogach write Mr. Yehia advising of these further productions. Ms. Bogach advised that this production was the result of an error whereby the tagging of one document in a family of documents caused all documents in the family to be marked irrelevant when that was in fact not the case. Ms. Bogach suggested postponing the discoveries.

[20] The ordered discoveries did not proceed. On March 13, 2023 Walsh produced a tranche of 7,155 documents. On April 3, 2023 it produced a further set of documents. The number was not specified in the evidence. A number of these documents contained redactions. When pressed about these redactions, Ms. Bogach stated in an email dated April 17, 2023 that these redactions covered irrelevant financial information about the project.

[21] On April 30, 2023 Walsh produced the missing exhibits to the EOT Report. In cross-examination in this motion, Mr. Conrod said that Walsh may be making additional production.

[22] At the May 8, 2023 trial management conference, at counsel suggestion, I rescheduled the discoveries to the time period between November 28 and December 14, 2023.

Issues

[23] Having reviewed the evidence and heard the submissions of counsel, I believe the following are the issues to be determined:

a) Do Gowing and Zurich need leave to bring this motion pursuant to Construction Act, R.S.O. 1990, c. C.30 (“CA”) section 67(2)? b) Did Walsh overproduce irrelevant documents? c) Did Walsh fail to produce all relevant documents concerning the allegations of harassment and discrimination against Gowing? d) Did Walsh fail to produce relevant documents concerning Walsh’s delay claim against the City? e) Should Gowing and Zurich be granted leave to amend their pleadings? f) Should Gowing and Zurich be awarded costs thrown away?

Analysis

a) Do Gowing and Zurich need CA section 67(2) leave?

[24] It is undisputed that the old CA applies. Old CA section 67(2) required that any interlocutory step not provided for by the CA needed the consent of the court obtained upon proof that the step was necessary or would expedite the resolution of the issues in dispute. Ms. Bogach argued that this section applied and that I should not grant leave.

[25] I do not accept that argument. First, the production motion pertains at least in part to the Walsh Civil Action and the Walsh Bond Action, neither of which are governed by the CA and the requirement for leave under CA section 67(2). The amendments motion is not governed by CA section 67(2) at all, as those amendments pertain to the Walsh Civil Action and the Walsh Bond Action. No leave is required for the amendments motion.

[26] Second, concerning the production motion as it pertains to the Gowing Lien Action, I view the production motion as a natural part of the leave I granted at the fifth trial management conference on March 29, 2021 for the parties to exchange affidavits of documents and productions. Testing the sufficiency of such production is a natural result and part of granting that leave.

[27] I do not find that Gowing and Zurich require leave for this motion.

b) Did Walsh overproduce irrelevant documents?

[28] It is now undisputed that Walsh has produced some 270,000 irrelevant documents. Kelly Friedman, a lawyer specialist in e-discovery employed by Mr. Yehia’s firm, was brought in by Gowing and Zurich in mid-February, 2023 to examine the productions. She spent about 40 hours finding these irrelevant documents in Walsh’s productions. This is an astounding 25% of the total Walsh production to date.

[29] While there will always be some small level of irrelevant documentation in a large production set, such a large amount of irrelevant document production is egregious. It is the primary function of the producing party to do the work of deciphering what documents in its power, possession and control are relevant, and to produce them with an affidavit of documents; see City of Ottawa v. Suncor Energy Inc., 2019 ONSC 1340, at paragraph 30, and Rekowski v. Renfrew (County), 2019 ONSC 2852, at paragraph 50. That is the requirement of Rule 30.02(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. This is all of course subject to the principle of proportionality. In my view, Walsh clearly breached that obligation. That this happened suggests at minimum that Walsh failed to apply proper search protocols.

[30] Ms. Bogach argued that it was the vague and unfocused discovery plan the parties agreed to on June 8, 2021 that caused Walsh to err in favour of inclusion. She also argued that, with the productions being electronic, Zurich and Gowing could weed out the irrelevant documents with their own searches. I was indeed not pleased to read the discovery plan the parties agreed to. It did not have the lists of custodians to be searched and the search terms to be applied by both sides, as I had ordered on March 29, 2021. This does not, however, in my view, detract from the primary obligation of the producing party to decipher and produce only relevant documents. I find that Walsh has not met this obligation.

[31] I, therefore, order that Walsh produce a further and better affidavit of documents eliminating all irrelevant documents found by Zurich and Gowing, and any other irrelevant documents.

[32] Furthermore, the motion material indicated that Gowing and Zurich have in the course of this motion produced their search terms and custodian lists. I order that Walsh do the same, namely produce its list of custodians that were searched and that should be searched, and its list of search terms that it applied to date and that should be applied in the future to meet its discovery obligations. The parties must then confer and do whatever further searches and disclosure that are necessary to meet their discovery obligations.

c) Did Walsh fail to produce all relevant documents concerning harassment and discrimination?

[33] There is no dispute that a significant issue in these actions is the allegation by Gowing that from 2016 to 2019 Walsh engaged in systematic discrimination and harassment of Gowing due to the fact that its principal, Jane Gowing, is a lesbian. This issue is raised at some length by Gowing and Zurich in their pleadings. The allegation is that this conduct was a major contributor to the breakdown in the relationship between the parties and the cessation of work by Gowing in 2019.

[34] It is also undisputed that on February 5, 2019 Walsh retained an outside investigator, Sarah Atkinson (a lawyer), to investigate these allegations. This investigator has conducted interviews with four Walsh employees (and perhaps others) and has transcripts of same. Under the “Terms of Reference” of the investigator (disclosed in the motion material), the interviews and notes are confidential and will only be disclosed to Walsh when the final report is issued to Walsh. The evidence indicates that Walsh has produced electronic versions of the transcripts of investigator interviews that are in Walsh’s possession; but these transcripts are password protected with the passwords in the possession of the investigator. There is no dispute that the investigation remains ongoing and that no final report has been issued. It should be noted that Gowing did not agree to any of the Terms of Reference and did not participate in the investigation.

[35] In my view, the issue of the transcripts (and investigator notes) is not one of confidentiality, but of power, possession or control. Concerning confidentiality, confidential information in relevant documents can be withheld only if the information is found to be significantly damaging or prejudicial to the producing party or others. Mere embarrassment or reputational damage does not meet this test; see Marsella v. BDBC, 2021 ONSC 3276, at paragraph 3. In this case, there is no question of the relevance of the transcripts and notes as they deal with a central issue in the litigation, namely the harassment and discrimination of Gowing. There is also no evidence that the disclosure of this information would cause the kind of irreparable damage to Walsh and the interviewees that would merit protection.

[36] However, there is an issue as to whether Walsh has power, possession or control over the transcripts and notes. Only documents in a party’s power, possession or control need to be produced; see Rule 30.02(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The evidence shows that the Atkinson investigation is not internal to Walsh. Under the Terms of Reference, it is clear that the investigation is outside of Walsh and is intended to provide an independent view as to what happened and whether Walsh’s policies on workplace harassment have been breached. Walsh does not have access to the investigator’s transcripts and notes until it receives the final report. Once the report is released, and along with it the investigator transcripts and notes, all of these documents become producible in this litigation and must be produced. I agree with Ms. Bogach that, until that happens, Walsh is not in possession, power or control of the transcripts and notes, and Gowing and Zurich must avail themselves of Rule 30.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to get at them.

[37] As to other documents that may be in the power, possession or control of Walsh concerning this issue and that have not been produced, there is no evidence that they exist. However, given Walsh’s egregious overproduction of irrelevant documents, I am not at all confident that they do not exist at all. I will, therefore, order that Walsh disclose its search terms concerning this issue, and that, after conferring with Gowing and Zurich, Walsh complete further searches and disclosure of relevant documents concerning this issue. I will also order that these reasons be delivered to Ms. Atkinson, as these reasons must not in any way to impede the conclusion of her investigation.

d) Did Walsh fail to produce relevant documents concerning Walsh’s delay claim against the City?

[38] This issue has two sub-issues. First, there is the issue of whether relevant documents concerning the Walsh delay claim against the City be produced by Walsh. Second, there is the issue of whether documents relating to the settlement of the Walsh claim against the City be produced. Walsh resists this production.

[39] Concerning the first issue, I have concluded that these documents are relevant. I note the following key facts from the evidence on this motion.

[40] First, there is a key Walsh defence. As indicated in the Walsh Statement of Defence in the Gowing Lien Action claim, on January 11, 2021 Gowing disclosed that over $11 million of its $15,883,317.12 claim for lien concerned delay and extension related costs. In paragraph 33 of this pleading Walsh asserts that the Subcontract expressly limits Gowing’s claim for delay costs to what Walsh can recover from the City under the prime contract for delay, and that Walsh has not recovered such damages from the City. This means that Walsh has expressly made its recovery from the City for delay related damages an issue with Gowing.

[41] Second, in the Walsh Civil Action Walsh expressly claims recovery from Gowing for any liquidated damages the City charges as against Walsh for delay concerning Gowing’s work. This means that Walsh has expressly made delay related issues the City asserts against Walsh concerning Gowing an issue in this litigation.

[42] Third, Walsh has essentially conceded that these documents are relevant. On February 27, 2023 Walsh produced its document embodying its delay claim as against the City. This is the EOT Report. The amount claimed is $19,930,689.82. I note that in this document Walsh expressly includes a claim of $834,627.82 for “Recovery of Subcontractor’s Extended General Condition costs (Gowing, excluding Gowing’s subcontractors).” There are other categories of damages that do not expressly refer to Gowing but that may include Gowing’s claim. In short, Walsh appears to have asserted some, if not all, of Gowing’s claim as against the City.

[43] Fourth, I note that Gowing alleges in its pleadings that Walsh not only harassed and discriminated against Gowing as discussed above, but also mismanaged the Project causing delay. Walsh in turn alleges in the Walsh City Action that the City caused Walsh delay through excessive changes and by failing to identify contaminated soil. The two sets of pleadings appear related.

[44] Given these facts, it is clear to me that relevant documents concerning the Walsh delay claim against the City must be produced by Walsh. Walsh’s search terms must take this into account. I so order.

[45] The second issue is the more difficult one. Walsh asserts settlement privilege over documents relating to the settlement of the Walsh claim against the City. These would include the minutes of settlement and any documents leading to and pertaining to the settlement.

[46] There is a general rule against the disclosure of settlement related documents. However, there is also an established exception to this rule of exclusion, namely where a third party to the settlement wants disclosure of the settlement documents because they are relevant to the third party’s case and the purpose of the disclosure is not to establish the liability or weakness of the case of the party to the settlement concerning the issues that were settled. This principle was aptly articulated in the decision of Justice Doherty in Mueller Canada Inc. v. State Contractors Inc. (H.C.J.). In this case, a contractor sued an owner concerning a construction project. The two parties settled that case. A subcontractor then sued both the contractor and owner. One of the allegations against the contractor was that through the settlement the contractor had breached a fiduciary duty to the subcontractor to present the subcontractor’s claim to the owner as a part of the contractor’s claim and not settle the contractor’s claim without also settling the subcontractor’s claim. The subcontractor wanted disclosure of the settlement documents, which were refused. His Honour ruled in favour of disclosure citing the above noted exception to the settlement privilege exclusion. He found that the subcontractor had put the settlement agreement directly in issue in its pleading, and that the settlement documents had relevance apart from any admission against interest by the contractor and the owner in the settlement.

[47] Several other decisions have adopted this principle: see Canadian Imperial Bank of Commerce v. The Queen, 2015 TCC 280, at paragraph 134 and Sabre Inc. v. International Air Transport Association, at paragraph 20.

[48] I find that Walsh has similarly put the settlement documents in issue in this litigation by virtue of its pleading, albeit indirectly. As stated earlier, in paragraph 33 of its statement of defence in the Gowing Lien Action, Walsh pleads that Gowing is contractually limited in its delay claim to what can be recovered from the City in delay damages concerning Gowing. In addition, as stated earlier, Walsh apparently included part of the Gowing claim in Walsh’s own claim to the City. Furthermore, in paragraph 17 of the Walsh Civil Action, Walsh claims any liquidated damages back-charge from the City concerning Gowing against Gowing. Therefore, the resolution of the issues as between Walsh and the City is highly relevant to the Gowing litigation apart from any admission against interest by Walsh or the City in the settlement.

[49] Walsh also argues that the settlement documents are subject to a confidentiality clause in the minutes of settlement, and that the City has refused to waive this clause. The minutes were, of course, not disclosed in the motion material, but the existence of this clause was not disputed. I reiterate my earlier comments about the assertion of confidentiality over relevant documents. The motion material did not show any evidence of irreparable damage or prejudice to the City or Walsh resulting from the disclosure of the settlement documents. Therefore, I am not prepared to prohibit the disclosure on this ground.

[50] It did trouble me, though, given the City’s interest in this part of the motion, that there was no evidence that the City was not put on notice of this motion. The City as a result did not appear. I have decided to deal with this concern in the same way Justice Mesbur did in Sabre, op. cit., paragraph 2. In that case there was an issue of the production of settlement documents and one party to the settlement had not been notified of the motion. Justice Mesbur at first instance ordered disclosure nonetheless and gave the party without notice the right to move to set aside the disclosure order. The motion in question was in fact that subsequent motion. Similarly, in the motion before me, I have decided to order disclosure with the right to the City to move to set that order aside.

e) Should Gowing and Zurich be granted leave to amend their pleadings?

[51] Gowing wants to amend its pleading in the Walsh Civil Action by adding a counterclaim. Zurich wants to amend its pleadings in the Walsh Bond Action by adding a counterclaim as well. Should they be granted leave to add these amendments?

[52] There was an initial issue of jurisdiction. Ms. Bogach argued that I did not have jurisdiction to hear the amendments motions. The references in the Walsh Civil Action and the Walsh Bond Action are governed by Rules 54 and 55 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Under Rule 55.02(10) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 a referee may grant leave to amend pleadings “that are not inconsistent with the order of reference.” Ms. Bogach argued that the proposed amendments add counterclaims and, therefore, are inconsistent with the order of reference. In my view, that issue turns on whether the counterclaims are based on causes of action whose material facts are already pleaded. I will say more on that point when I discuss the limitation point, which deals with the same issue.

[53] But I reject the jurisdiction challenge in any event. Were I to find that the new counterclaims are indeed based on new causes of action not previously pleaded and therefore inconsistent with the order of reference, I would nevertheless have jurisdiction as an associate justice outside the reference under Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to make the order. In that event, there would be the complication of having the amendments fall outside the reference order, thereby creating the need for another order of reference concerning them. But my jurisdiction to make the order would not be in doubt.

[54] I move on to discuss the substance of the amendment motions. On a motion such as this, the court must read the original pleading and the amendments generously and allow for drafting deficiencies; see Klassen v. Beausoleil, 2019 ONCA 407, at paragraph 30.

[55] The proposed Zurich counterclaim seek damages in the amount of $9,551,970.02 plus punitive damages of $500,000, and claims that all of these damages stemmed from Walsh’s alleged breaches of contract and negligence concerning the Subcontract and the Performance Bond. Some of these damages are stated as having been suffered by Zurich under the Performance Bond. The remainder of the claimed damages are stated as concerning amounts paid under bonds on two other projects “issued to Gowing.”

[56] The proposed Gowing counterclaim claims these same damages of $9,551,970.02 and punitive damages of $500,000. It also claims unquantified damages for loss of goodwill, profit and opportunity “in relation to Walsh’s destruction of Gowing Contractors’ business.” The damages are alleged to stem from Walsh’s alleged breaches of the Subcontract and negligence. It is alleged that Walsh’s conduct led to the destruction of Gowing’s business, and that the damages of $9,551,970.02 are a part of that destruction, being the amounts Gowing must indemnify Zurich for its losses on bonds it issued for Gowing.

[57] There was some confusion concerning the amendments. In argument, Mr. Yehia stated that Zurich and Gowing intended to plead a tort of “intentional destruction of a business.” That is not explicitly stated in the draft amended pleadings, which are not elegantly drafted. The draft amendments state explicitly that the causes of action are breach of contract, along with an allegation of the breach of the duty of good faith in contractual performance, and negligence.

[58] But the amendments nevertheless resemble what Mr. Yehia described. After careful review and giving the amendments a generous reading, I have concluded that the implicit core allegation appears to be that Walsh breached its duty of good faith performance of the Subcontract and breached a separate duty of care in performing its Subcontract obligations by setting out to destroy Gowing’s business, thereby causing Gowing widespread business losses that in turn triggered Zurich losses on bonds it issued for Gowing on the Project and other projects, losses that Gowing must indemnify. The deliberate nature of the alleged Walsh conduct would appear to be key to this pleading as that would attract the sweeping damages claimed. Mr. Yehia essentially admitted this in his factum by asserting that evidence of Walsh’s deliberate intention to destroy Gowing’s business came to light during the mediation in December, 2022, which led to this motion.

[59] Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 requires the court to grant leave to amend at any stage unless prejudice would result that could not be compensated for by costs or an adjournment. One of the grounds on which the court can refuse an amendment is when it does not disclose a reasonable or tenable cause of action; see Klassen, op. cit., at paragraph 25. A cause of action is a set of facts that under the law leads to a remedy; see Polla v. Croatian (Toronto) Credit Union Limited, 2020 ONCA 818, at paragraph 30. The material facts that compose the claimed cause of action must be pleaded; see Rule 25.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The test under Rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 will be a guide on the issue of the tenability of pleading amendments. Under that test, the pleaded facts are assumed to be true unless they are incapable of proof, and bald conclusory statements of fact are not assumed to be true; see Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789, at paragraph 11.

[60] I find that there is a lack of tenability with parts of the proposed amendments. First, Walsh showed that many of the claimed damages concern a third party company. Zurich’s amendments state that $5,463,324.74 of the $9,551,970.02 in claimed damages pertained to a project called, “Group 5 SPS.” The motion contained a “Deed of Release, Assignment and Undertaking(s)” in favour of Zurich concerning the Group 5 SPS project, which described the contractor as, “Gowing Contractors (2018) Ltd.,” not the Gowing in this litigation. The Zurich amendments also state that $445,396.02 of the $9,551,970.02 in claimed damages pertains to a project called, “Humber WWTP HVAC Upgrades.” The motion contains a certificate of substantial performance of the project that describes the contractor as the same “Gowing Contractors (2018) Ltd.,” not the Gowing in this litigation. A significant part of the $752,957.66 of claimed adjusting and legal expenses (also a part of the $9,551,970.02 in claimed damages) pertains to these two projects as well. Neither of these projects involved Walsh. Zurich and Gowing did not dispute these facts.

[61] While there is a commonality in the names between Gowing Contractors (2018) Ltd. and the Gowing in this litigation, Gowing and Zurich have pleaded no material facts creating any other connection between these two companies. Indeed, the amendments are inaccurate on this issue as they assert that the bonds issued for those projects were for Gowing when that appears not to be the case. There are also no material facts pleaded that specify any indemnity obligation on Gowing concerning the Zurich bonds for Gowing Contractors (2018) Ltd. There is also no evidence in the motion from Zurich and Gowing elucidating these issues. Given this paucity of pleaded material facts and evidence, I find that the amendments contain no tenable cause of action for breach of contract and negligence concerning these damages, as they appear to be damages suffered by and on account of Gowing Contractors (2018) Ltd., not Gowing, and have nothing to do with Walsh.

[62] Second, the claim in negligence as pleaded is also not tenable. Ms. Bogach is correct in observing that the Walsh claim in negligence is for pure economic loss, namely the loss of a business and the loss of money. As was pointed out by the Supreme Court of Canada in 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, at paragraph 19, the common law has been reluctant to accord protection of economic interests in tort. There is no general right against the negligent infliction of pure economic loss. The reason for this, as was pointed out by the Supreme Court in Maple Leaf Foods, op. cit., paragraph 19, is that such a general right would amount to an unreasonable incursion into the marketplace.

[63] Specific rights of recovery for economic loss in tort have been recognized, such as with the claims of negligent misrepresentation, negligent provision of a service, negligent supply of shoddy goods or structures and relational economic loss. Those categories to not apply here. To create a new specific right of recovery for economic loss in tort, material facts must be pleaded that create the relationship of proximity giving rise to the duty of care to avoid the economic loss in question. In this case, that would mean that there must be material facts pleaded that give rise to a duty of care on Walsh to avoid a Gowing business failure while performing the Subcontract. While Gowing and Zurich have pleaded sexual discrimination and harassment and breach of contract at length, there are no material facts that lay the foundation for a duty of care in tort on Walsh to protect Gowing’s business. As a result, I find that the pleaded claim in negligence is not tenable.

[64] The remainder of the amendments concern the alleged Gowing and Zurich breaches of contract claims. Ms. Bogach raised arguments about the tenability of these claims. She argued that Zurich has no claim for breach of contract damages against Walsh because Zurich rejected Walsh’s claim on the Performance Bond.

[65] I do not accept that argument. I note that the Subcontract is expressly incorporated by reference into the Performance Bond, and that in paragraph 1 of the bond Zurich guarantees to Walsh that Gowing will “promptly and faithfully” perform the Subcontract. In paragraph 10 of the bond there appears to be, in my view, a reciprocal promise by Walsh to perform the Subcontract properly as a condition of getting the benefit of the bond. If Walsh then breached the Subcontract after getting the benefit of the bond, as alleged in the amendments, and Zurich incurred losses on the subject project, such as under its Payment Bond or adjusting costs, these may arguably be recoverable from Walsh as breach of contract damages. Ms. Bogach provided no authority to the contrary. Whether Zurich can go further and recover losses on Gowing bonds for other projects is, in my view, a question of remoteness of damages, namely whether these damages are a reasonably foreseeable consequence of the Walsh contract breach.

[66] Ms. Bogach also argued that the amendments violate the rule that an insurer cannot pursue a subrogated claim against its own insured (see Condominium Corporation No. 9813678 v. Statesman Corporation, 2007 ABCA 216, at paragraph 9) and the rule that a contractual promise to provide insurance extends that protection against subrogated claims to the party to the contract (see Sanofi Pasteur Limited v. UPS SCS, Inc., 2015 ONCA 88, paragraph 54). Ms. Bogach pointed out that Gowing promised in the Subcontract to provide Walsh with a payment bond and that Walsh is a beneficiary of the payment bond.

[67] However, I also do not accept that argument. Subrogation arises when an insurer pays out on an insured loss. What is guaranteed by the Zurich bonds is the performance of Gowing. Losses caused by Gowing are covered. Losses caused by breaches of the Subcontract caused by the obligee, Walsh, which is what is alleged in the amendments, are not covered. I, therefore, fail to see how the subrogation issue is engaged with these amendments.

[68] Another ground on which a court can refuse a pleading amendment is if the amendment raises a new cause of action after the expiration of the limitation period on that claim; see Polla, op. cit., paragraph 33. Walsh asserts that that is the case with these amendments, including the breach of contract claim. Gowing and Zurich respond that the amendments arise from the original pleading and contain nothing more than alternative forms of relief based on the originally pleaded facts. Indeed, as stated by the Court of Appeal in Klassen, op.cit., paragraph 28, an amendment will not be found to be 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.” Claiming new heads of damages arising from the previously pleaded facts is considered by the courts as not pleading a new cause of action: see Ivany, et al. v. Financiere Telco Inc., et al., 2011 ONSC 2785, at paragraph 29.

[69] Concerning the breach of contract amendments and giving the pleadings a generous reading as I must, I agree with Gowing and Zurich. In its original statement of defence in the Walsh Civil Action, Gowing pleads in great detail Walsh’s alleged breaches of its duty of good faith performance of the Subcontract through systematic sexual discrimination and harassment of Gowing. Importantly, there are aspects of this original pleading that take this assertion to the level of a deliberate attack by Walsh on Gowing’s business. In paragraph 45, Gowing pleads that Aron Shea of Walsh advised Jane Gowing in November, 2016 that “Walsh would have no concerns about bankrupting Gowing Contractors . . .” In paragraph 57 Gowing pleads that Walsh spread “false accounts” to the City of Toronto and its consultant. While not stated explicitly, it is clear that such conduct would have a widespread, adverse business impact on any company doing infrastructure work such as Gowing. In paragraph 61 Gowing pleads that “both Shea and Herschegger [another Walsh employee] continued to threaten Gowing Contractors with bankruptcy . . .” In paragraph 63 Gowing pleads that at a meeting on September 20, 2017 Herschegger threatened to have Walsh call on the Gowing bond in order to bankrupt Gowing and “bury the fucking bitch.” In paragraph 66 Gowing pleads that Walsh’s conduct was “aimed at harming Gowing Contractors and its president.” These pleadings establish a claim against Walsh for breach of the duty of good faith contract performance with the intention to destroy Gowing’s business.

[70] In its original statement of defence in the Walsh Bond Action, Zurich includes the same allegations. In paragraph 12, Zurich expressly pleads and relies upon the allegations made by Gowing in its statement of defence in the Walsh Action.

[71] What the amendments, in my view, seek to do is add the claim for damages to the above noted original claim for breach of contract with the intention to destroy Gowing’s business. As such, they do not plead a new cause of action. They simply add a form of relief to the previously pleaded cause of action.

[72] Ms. Bogach puts much emphasis on the fact that the amendments add counterclaims that did not exist before and that these counterclaims are based in large part on the novel allegation of Zurich bonding losses stemming from Gowing’s business losses and Gowing’s obligation to indemnify Zurich for these losses. I agree that these allegations are novel. But that alone does not make the amendments a new cause of action. Indeed, I find that the amendments concerning the breach of contract claim relate to the issue of damages and the chain of causation of the damages that flow from the originally pleaded breaches of contract. There may well be an issue in the end of the remoteness of the damages claimed, but that does not go to the issue of the existence of a new cause of action. The counterclaims are new, but I note that they both contain pleadings that refer back to and adopt the original pleadings. The question is whether they contain new causes of action, and I find for the purposes of this motion that they do not in relation to the breach of contract claims.

[73] What must also be born in mind is that the Walsh Civil Action is effectively a counterclaim to the Gowing Lien Action. In the Gowing Lien Action, Gowing makes essentially the same allegations it makes in its statement of defence to the Walsh Civil Action and asserts in the Gowing Lien Action a claim for breach of contract damages as well as a lien claim. That is what convinces me all the more that the new Gowing and Zurich counterclaims in the Walsh Civil Action and Walsh Bond Action are simply additional forms of relief arising from the previously pleaded facts.

[74] This conclusion brings me back to the earlier jurisdiction issue. It is for these reasons that I do not find that the amendments concerning the breach of contract claim are inconsistent with the order of reference. I, therefore, find that I have jurisdiction within the reference to make this order.

[75] I, therefore, rule that Gowing and Zurich have leave to amend their pleadings as requested with the exception of the pleaded claims of negligence and all damages claimed in relation to the Group 5 SPS project and the project called the Humber WWTP HVAC Upgrades.

f) Should Gowing and Zurich be awarded costs thrown away?

[76] Zurich and Gowing claim costs thrown away for three events: (a) their culling and reviewing of deficient Walsh productions; (b) the time spent at the trial management conference on February 6, 2023 on the Walsh productions issue which resulted in my refusal to adjourn the scheduled discoveries despite Mr. Yehia’s complaints about the Walsh productions, only to have those discoveries adjourned anyway later on consent due to Walsh’s late further productions; and (c) the wasted time spent by Zurich and Gowing preparing for the scheduled discoveries in March, 2023 when those discoveries were adjourned on consent due to Walsh’s late further productions. Zurich and Gowing have submitted a bill of costs that shows $127,447.33 of actual costs, $114,702.60 of substantial indemnity costs and $76,468.40 of partial indemnity costs. They want full indemnification of the $127,447.33.

[77] Under section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”), the court is given broad discretion to award costs, including costs thrown away. As indicated in the decision of Justice Broad in Skoblenick v. Aviva General Insurance Company, 2021 ONSC 5340, at paragraph 19, costs thrown away are awarded to indemnify a party for costs incurred that are entirely wasted costs due to an adjournment or other event caused by the other side. The award is usually either of actual costs or substantial indemnity costs, and the assessment of the costs thrown away is an intuitive exercise that is not done with precision.

[78] Ms. Bogach argued that I am not in a position to determine at this time that any of these claimed costs are truly wasted. I disagree. I am prepared to order costs thrown away for the work Gowing and Zurich did in finding the huge number of irrelevant documents in Walsh’s productions. This was work Walsh should have done, and must now pay for. Ms. Friedman spent 40 hours doing this work at $500/hour. That amounts to $20,000. I am not convinced that all of the time shown in the bill of costs for Mr. Yehia and the junior lawyer, Evan Ivkovic, in this regard was as focused on the irrelevant document search, given Mr. Friedman’s work. I am prepared to award 25% of what is shown for those two lawyers, $13,500, as a result. The remainder of the shown time I am not prepared to find to be wasted time. Searches of relevant documents, even without the Walsh search terms, would have had to be done in any event.

[79] I am also prepared to find all the time shown in the bill of costs for the time spent on the Walsh documents issue at the February 6, 2023 trial management conference as costs thrown away. That cost is $3,302. I am also prepared to find some fraction of the time shown for the preparation Mr. Yehia and Mr. Ivkovic did for the March 2023 discoveries as costs thrown away. That fraction I have determined to be 33%, namely $10,000. That represents my rough estimate of the time that will have to be redone to prepare for these same discoveries later. The remainder of those preparation costs are not wasted.

[80] I make a general comment about this order of costs thrown away. Walsh insisted at the February 6, 2023 trial management conference that the scheduled discoveries proceed in March, 2023. With such a position, and given my previous directions on productions, Walsh should have had all of its productions done by that point. That was obviously not the case. Given what happened subsequently, Walsh should not have resisted Mr. Yehia’s request for a consent adjournment of the discoveries prior to the February 6, 2023 trial management conference. I also note that Walsh did not disclose its subsequent productions for some weeks after it knew about them, thereby forcing Zurich and Gowing to do preparation work at that time that could have been avoided. This all factored into my decision.

[81] Accounting for HST, I, therefore, find that Walsh must pay Zurich and Gowing the following in costs thrown away: ($20,000 + $13,500 + $3,302 + $10,000) x 1.13 = $52,886.26. Walsh must pay this amount in sixty days from the date of these reasons.

Conclusion

[82] In conclusion, for the reasons stated above, I make the following orders:

a) Walsh must produce a further and better affidavit of documents and the documents listed in Schedule A therein that are not already produced, all in accordance with my orders as set out below; b) Walsh’s affidavit of documents must eliminate all the irrelevant documents found by Zurich and Gowing, and any other irrelevant documents; c) Walsh must produce its list of custodians that were searched and that should be searched, and its list of search terms that it applied to date and that should be applied in the future to meet its discovery obligations; and the parties must then confer and do whatever further searches and disclosure that are necessary to meet their discovery obligations; d) Walsh must disclose its search terms concerning the issue of Walsh’s systematic harassment and discrimination against Gowing, and that, after conferring with Gowing and Zurich, Walsh must complete further searches and disclose relevant documents concerning this issue; e) When Ms. Atkinson releases her report and all the documents associated with it to Walsh, these documents must be disclosed by Walsh; f) Walsh must deliver these reasons forthwith to Ms. Atkinson, as these reasons must not in any way impede the conclusion of her investigation; g) Walsh must produce the relevant documents concerning its delay claim against the City, and Walsh’s search terms must take this into account; h) Walsh must disclose the settlement documents concerning the settlement of its delay claim against the City, and Walsh must deliver these reasons forthwith to the City, and the City has the right to move to set aside this order; i) Gowing and Zurich have leave to amend their pleadings as requested with the exception of the pleaded claims of negligence and all damages claimed in relation to the Group 5 SPS project and the project called the Humber WWTP HVAC Upgrades; j) Walsh must pay Gowing and Zurich costs thrown away in the amount of $52,886.26 on or before sixty (60) days from the date of these reasons.

[83] The parties must confer and provide me with suggestions as soon as possible as to deadlines for these tasks with a view to facilitating the discoveries that were ordered to take place between November 28 and December 14, 2023. I will incorporate these suggestions into directions.

[84] Concerning the costs of this motion, Gowing delivered a costs outline that shows $74,568.91 in partial indemnity costs, $110,785.16 in substantial indemnity costs and $122,857.25 in actual costs. Walsh delivered a costs outline that shows $81,318.65 in partial indemnity costs, $108,192.65 in substantial indemnity costs and $135,066.65 in what appears to be actual costs.

[85] The parties are encouraged to settle the issue of the costs of this motion. If they cannot, I make the following order as to written submissions on costs:

• Zurich and Gowing must deliver written submissions on these costs of no more than three (3) pages on or before August 9, 2023;
• Walsh must deliver written submissions on these costs of no more than (3) pages on or before August 18, 2023; and
• Zurich and Gowing may deliver reply written submissions of no more than one (1) page on or before August 22, 2023.

Released: July 28, 2023 Associate Justice C. Wiebe