Glitches in factual matrices

Ontario: the Court of Appeal on adding a new claim

In Klassen v. Beausoleil, the Court of Appeal provides a helpful summary of the analysis for determining whether proposed amendments assert a fundamentally new claim:

(1)         The test to be applied

[24]      I begin with the text of r. 26.01 of the Rules. It provides:

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. [Emphasis added.]

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

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

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

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

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

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.[2]

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

[31]      Finally, the court may refuse an amendment where it would cause non-compensable prejudice. The prejudice must flow from the amendment and not some other source: Iroquois Falls, at para. 20. At some point the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party is presumed. In this event, the onus to rebut the presumed prejudice lies with the moving party: State Farm, at para. 25.

[32]      Alternatively, the responding party may resist the amendment by proving actual prejudice – i.e. by leading evidence that the responding party has lost an opportunity in the litigation that cannot be compensated by an adjournment or an award of costs as a consequence of the amendment. It is incumbent on the responding party to provide specific details of the alleged prejudice: State Farm, at para. 25.

[33]      Irrespective of the form of prejudice alleged, there must be a causal connection between the non-compensable prejudice and the amendment. The prejudice must flow from the amendment and not from some other source: State Farm, at para. 25.

[34]      Bearing in mind these principles, the framework to determine the issues raised by this appeal is as follows:

  •     Are the proposed amendments to assert a claim to a 33% ownership interest the assertion of a “new cause of action”? If the proposed amendments are the assertion of a new cause of action, are the amendments statute-barred?

  •     Irrespective of the above, is this a case where non-compensable prejudice will arise as a consequence of the amendments?

Ontario: amendments are subject to time-bars

In Lucky Star Developments Inc. v. ABSA Canada International, the Court of Appeal rejected the doubtful argument that because the basic limitation period applies to the commencement of proceedings, it does not apply to proceedings that have already been commenced, and therefore does not bar amendments under r. 26.01:

[7]         In oral submissions, the appellant argued that s. 4 of the Limitations Act 2002, S.O. 2002, c. 24, Sched. B does not apply to proceedings that have already been commenced, and so does not bar amendments under r. 26.01. We disagree. As the court noted in Joseph, the rules must be read in light of the Act and its purpose in establishing a basic limitation period in s. 4. Amendments adding claims after the limitation period has expired constitute prejudice.

 

Though it’s  plain this argument was bound to fail—it would mean there is no limitation of new claims asserted in already-commenced proceedings—it’s a symptom of the conceptual difficulties that arises from the language “proceeding in respect of a claim”.

The jurisprudence seems to have settled on “proceeding” having the same meaning as it does under the Rules.   Rule 1.03 defines “proceeding” to include an action and an application, and the Court of Appeal has applied this definition to the term “proceeding” as used in the Limitations Act: see e.g. Giglio v. Peters, 2009 ONCA 681 at paras. 21-22 [“Giglio”]. See also Guillemette v. Doucet, 2007 ONCA 743 at para. 20.

Strictly applied, this means that s. 4 bars actions or applications commenced in respect of a claim.  A proposed amendment to add a claim to an existing action is of course not a proposal to commence a new action.  I’ve argued before that the solution to this tension is to abandon a narrow definition of “proceeding” and to define the commencement of a proceeding broadly enough to include amending a pleading to introduce a new claim.

 

Ontario: the limitation of new causes of action

In David v. Easte Side Mario’s Barrie, the Court of Appeal quotes from The Law of Civil Procedure in Ontario for the principle that an alternative claim for relief arising out of the same facts is not a new cause of action for limitations purposes:

[32]      And, quoting from Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3d ed. (Toronto: LexisNexis Canada, 2017), at p. 186:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.

See also 1100997 Ontario Limited, at para. 20.

Ultimately, the Court applied the “fundamentally different claim” test to conclude that the plaintiff wasn’t entitled to the amendment.

As I discussed when the Court of Appeal last addressed this issue, the “fundamentally different claim” test makes a lot of sense.

My complaint, which I recognise verges on pedantry, is that a cause of action analysis, and the casual use of the word “claim”, is problematic in the limitations context.  The Limitations Act has nothing to do with causes of action, and, as I often note, does not appear in the Act.  This is because the Act uses the language of “claim”, which reflects an intentional break with cause of action accrual as determinative of the commencement of time.  Claims are not causes of action, and causes of action have very little do with the operation of the current limitations scheme.  It’s unhelpful when the Court fails to account for this.

Ontario: The Court of Appeal on adding new claims to a proceeding

The Court of Appeal in 1100997 Ontario Limited v. North Elgin Centre Inc. sets out the test for amending a pleading to add a new claim outside a limitation period (making our last post rather unnecessary).  The court will refuse an amendment when it seeks to advance after the expiry of the limitation period a “fundamentally different claim” based on facts not originally pleaded:

[19]      A cause of action is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: Letang v. Cooper, [1965] 1 Q.B. 232 (C.A.), at pp. 242-43, as adopted by this court in July v. Neal (1986), 1986 CanLII 149 (ON CA), 57 O.R. (2d) 129 (C.A.), at para. 23.

[20]      In Morden & Perell, The Law of Civil Procedure in Ontario, 2nd ed. (Markham: LexisNexis Canada Inc., 2014), at p. 142, the authors state:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon which the original right of action is based. [Footnotes omitted.]

[21]      In Dee Ferraro Ltd. v. Pellizzari, this court noted the distinction between pleading a new cause of action and pleading a new or alternative remedy based on the same facts originally pleaded. The appellants had commenced an action against their lawyer claiming damages for breaches of contract, trust and fiduciary duty and for fraud and negligence. The appellants then sought to amend their pleading. This court, in overturning the motion judge’s dismissal of the motion to amend, concluded that the proposed amendments, such as claims for a mandatory order and a constructive trust over shares, could be made because they flowed directly from facts previously pleaded.

[22]      By contrast, a proposed amendment will not be permitted where it advances a “fundamentally different claim” after the expiry of a limitation period: Frohlick v. Pinkerton Canada Ltd. In that case, the court did not permit the plaintiff in a wrongful dismissal action to amend the statement of claim to assert a claim for damages for constructive dismissal on the basis that the limitation period had expired. This court dismissed the appeal. The amendment regarding constructive dismissal related to events that occurred prior to the events described in the original statement of claim that were unrelated to that claim. The defendant was unaware of the new allegations prior to the plaintiff seeking the amendments, and the events were not put in issue or encompassed within the original claim.

[23]      Based on the foregoing, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a “fundamentally different claim” based on facts not originally pleaded.

I think this is a sound conclusion. Allowing amendments so long as they don’t advance a fundamentally different claim based on the facts originally pleaded makes sense, though it doesn’t seem like much of a departure from the “same factual matrix” test.  Indeed, later in the decision Justice van Rensburg refers to the factual matric concept:

[38]      I therefore conclude that the proposed amendments contained in the statement of claim ought not to have been refused on the basis that they raised new claims based on new causes of action.

Perhaps this new formulation’s chief virtue is that it doesn’t necessarily require a cause of action analysis.  Comparing claims is materially different than comparing causes of action.  “Claim” is a defined term in the Limitations Act, whereas the words “cause of action” don’t appear at all in the Limitations Act, and particular causes of action and their accrual are immaterial to a limitations analysis.  Mischief results when the court forgets this.

Other aspects of the decision are noteworthy.  Justice van Rensburg concludes that when a notice of application commences a proceeding, the court should consider both the notice of application and the supporting affidavit material to determine whether a proposed amendment sets forth a new claim.

Justice van Rensburg follows the 1989 Court of Appeal decision in Energy Probe v. Canada (Attorney  General) for the principle that affidavit materials on an application form part of the pleadings.  The interesting question that arises from this principle is its interaction with the affirmative nature of a limitations defence.  In an action, the defendant must plead the Limitations Act in the statement of defence.  The plaintiff may then plead the facts supporting a discovery argument in reply.  See the Court of Appeal decision in Collins.

Does this mean that the respondent to an application should “plead” the limitations defence in  a responding affidavit? Should the applicant then plead the facts supporting a discovery argument in a reply affidavit?  Increasingly, I’m of the mind that it’s impossible to square limitations law and application procedure (with certain exceptions, especially contested applications to pass accounts), but this is an issue (and likely an article) for another day.

Lastly, Justice van Rensburg  also reminds us that an order refusing leave to amend a pleading to add a new claim outside a limitation period is a final order:

[17]      In Energy Probe v. Canada (Attorney General) (1989), 1989 CanLII 258 (ON CA), 68 O.R. (2d) 449 (C.A.), leave to appeal refused 37 O.A.C. 160 (S.C.C.), in determining whether a cause of action was disclosed, this court stated that “affidavit materials on an application are to be considered as the pleadings” (at para. 10). Further, where oppression proceedings commenced by notice of application were converted into an action in Przysuski v. City Optical Holdings Inc., 2014 ONSC 3686 (CanLII), Perell J. refused to strike paragraphs of the statement of claim as raising unanticipated claims as an abuse of process because “[t]he Notice of Application should be read with its supporting affidavits and with the evidentiary record for the Application” (at para. 11).