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Civil Litigation - Pleadings - General (2)

. Shwaluk v. HSBC Bank of Canada

In Shwaluk v. HSBC Bank of Canada (Ont CA, 2023) the Court of Appeal considered granting leave to amend a Claim, here in the context of withdrawal of an factual or a legal admission:

[4] An admission may relate to a fact or to a legal consequence − a position − alleged to flow from the fact. In determining whether a proposed amendment withdraws an admission in a pleading, the nature and extent of the admission is a key consideration. ...

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[14] The motion judge dismissed the motion. She essentially gave two reasons for doing so.

[15] First, she held the proposed amendments seek “to withdraw the admission by [Ms. Shwaluk] that she did not submit an application for LTD benefits to Sun Life”. She noted that withdrawal of an admission is governed by r. 51.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and requires the moving party to demonstrate that the proposed amendment raises a triable issue, the admission was inadvertent or resulted from erroneous instructions, and the withdrawal will not result in non-compensable prejudice to the other party. The motion judge found that Ms. Shwaluk did not satisfy any of these criteria.

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(1) Did the motion judge err in concluding the amendments sought to withdraw an admission?

[17] In my view, the motion judge failed to use the correct legal test and erroneously determined that Ms. Shwaluk sought to withdraw an admission. That erroneous determination resulted in the motion judge applying the incorrect test to the question of whether the amendments should be allowed. Appellate interference is therefore justified, as a judge errs in law when they apply the wrong legal test: Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, at para. 35.

(a) The Amendments Did Not Withdraw an Admission

[18] The motion judge’s reasons for concluding that the amendments involved the withdrawal of an admission were brief. She simply stated that the “amendments proposed by [Ms. Shwaluk] are an attempt … to withdraw her admission; that she never filed an application for LTD [benefits]”. The only paragraph of the amendments she specifically referred to was (underlining indicates the amended portion):

[Ms. Shwaluk] did not submit an application/formal proof of loss claim form for LTD benefits to Sun Life, pending resolution of her STD benefits with her employer. However, [Sun Life] was put on notice by June 22, 2015 that [Ms. Shwaluk] was seeking short-term and long-term disability benefits.

[19] With respect, the motion judge erred in concluding that this amendment constituted a withdrawal of an admission.

[20] To determine whether an amendment withdraws an admission, two matters need to be considered: (i) the nature and extent of the admission in the original pleading; and (ii) the difference between the original pleading and the proposed amended pleading concerning what was admitted.

[21] In addressing these matters, it is important to recognize that admissions can pertain to alleged facts or to the legal conclusions or consequences (i.e., the party’s positions) alleged to follow from the alleged facts, or to both.

[22] Therefore, when considering the nature and extent of an admission, a court must consider whether the admission does one, or both, of the following: makes a “deliberate concession to a position taken by” the other party; or, accepts that “a set of facts posed by” the other party is correct: Yang v. The County of Simcoe, 2011 ONSC 6405, at para. 46 (emphasis added).

[23] That admissions may relate to facts or positions follows from the nature of the pleadings process. Pleadings are required to set out the material facts on which a party relies for their claim or defence. However, they may also contain conclusions of law if the material facts supporting them are pleaded: rr. 25.06(1) and (2). In other words, pleadings must allege facts, but they also, permissibly and routinely, allege the positions said to follow from those facts.

[24] For example, a plaintiff’s pleading may describe what the defendant did or failed to do, and it may also plead that such behaviour was negligent. The former are allegations of fact, the latter a position as it is a conclusion of mixed fact and law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 26-29. Similarly, a pleading may allege that the defendant fired the plaintiff with a specific amount of notice − an allegation of fact − but may also allege that doing so was a wrongful dismissal, a position as it is a proposition of mixed fact and law: Dupuis v. Edmonton Cellular Sales Ltd., 2006 ABCA 283, 397 A.R. 376, at para. 6.

[25] Responsive pleadings (defences and replies) may address both the factual allegations and the conclusions or positions in the pleading being responded to, including by making admissions. Efficiency and fairness in the civil litigation process is advanced when this occurs. Although the Rules of Civil Procedure regarding statements of defence and reply pleadings refer to admissions of alleged facts found in the pleading to which they respond (see rr. 25.07(1) and 25.09(1)), nothing in the Rules prevents a party from also admitting, or denying, a legal conclusion or position that has been alleged. For instance, a defendant could admit that they behaved as the plaintiff contends and deny the position that the conduct constituted negligence or wrongful dismissal. Or they could, instead, admit that the conduct constituted negligence or wrongful dismissal, but then deny that the plaintiff suffered any damages. Doing so helps to frame the issues in the litigation.

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(b) The Motion Judge’s Error Led Her to Apply the Wrong Test for Whether to Grant Leave to Amend

[36] Amendments to pleadings are generally governed by r. 26.01: “On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment”. Under this rule, the court must permit an amendment, regardless of the stage of the action at which it is sought, unless the party opposing the amendment can demonstrate actual prejudice that is non-compensable, or unless the delay in seeking it was so long, and the justification so inadequate, that prejudice is presumed: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42, 135 O.R. (3d) 681, at para. 25.

[37] This is a different test than the one applicable for when the proposed amendment would withdraw an admission made in the original pleading. Rule 51.05 provides that: “an admission in a pleading may be withdrawn on consent or with leave of the court”. Absent consent, the party seeking an amendment to withdraw an admission must satisfy a three-part test to be granted leave. They must show that: (a) the proposed amendment raises a triable issue; (b) the admission sought to be withdrawn was inadvertent or the result of wrong instructions; and (c) the withdrawal will not result in non-compensable prejudice: Szelazek Investments Ltd. v. Orzech (1996), 44 C.P.C. (3d) 102 (Ont. C.A.).

[38] The test for withdrawal of an admission varies in two significant ways from the test applicable to other types of amendments. First, where no withdrawal of an admission is involved, the moving party is not required to show that the prior version of the pleading is the result of inadvertence or incorrect instructions. Second, the onus regarding prejudice is different. Where an admission is withdrawn “the onus is on the moving party to show that the opposite party will not be prejudiced, rather than the reverse as is the case under rule 26.01”: Kostruba and Sons v. Pervez, 2011 ONSC 4894, 38 C.P.C. (7th) 100, at para. 42.

[39] The motion judge applied the test for withdrawal of an admission and did so erroneously since no withdrawal was being made. The use of the incorrect test made a difference. I do not read the motion judge’s findings that Ms. Shwaluk had failed to satisfy the three-part test for withdrawal of an admission to be the equivalent of finding that Ms. Shwaluk should be denied leave to amend under r. 26.01. As I will explain, when the correct test is applied, leave to amend should be granted.

[40] The first consideration is the legal tenability of the amendment. An amendment will not be permitted if it is legally untenable, a point determined on the basis of the pleading taken as true, rather than by weighing evidence: Andersen Consulting Ltd. v. Canada (Attorney General) (2001), 2001 CanLII 8587 (ON CA), 13 C.P.C. (5th) 251 (Ont. C.A.), at paras. 34-35. Although the motion judge said the amendments did not raise a triable issue, her treatment of this point focussed on whether there was a reasonable explanation for Ms. Shwaluk’s supposed withdrawal of an admission, and was melded together with a consideration of whether the admission in the reply was inadvertent. She did not consider whether on the facts alleged in the amendments, taken as true, relief from forfeiture had a reasonable chance of success.

[41] Failing to file a proof of loss with an insurer within a policy-prescribed time limit is a type of imperfect compliance which might be amenable to relief from forfeiture: Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at pp. 784-85; Kozel v. Personal Insurance Co., 2014 ONCA 130, 119 O.R. (3d) 55, at paras. 40-43. Although Sun Life argues that relief from forfeiture pursuant to s. 129 of the Insurance Act is not applicable to this type of policy, it is unnecessary that I determine whether that section, or any other section of the Insurance Act providing for relief from forfeiture, may apply. I see no reason why s. 98 of the CJA would not be applicable, as it has been held to be “available as an avenue of relief for contracts governed by the Insurance Act”: Kozel, at para. 58.

[42] In my view, the amended pleading raises a request for relief from forfeiture that is legally tenable. For example, in Smith v. Sun Life Assurance Company of Canada, 2021 ONSC 7109, the court granted relief from forfeiture after first determining that an insured’s failure to file a formal application for LTD benefits constituted imperfect compliance. The case involved circumstances where the insurer had previously dealt with and adjudicated the plaintiff’s request for STD benefits based on the same alleged disability and had some notice of an intention to claim LTD benefits: at paras. 25-28.

[43] The second consideration is prejudice. The motion judge made a finding that Ms. Shwaluk failed to show that Sun Life would not suffer non-compensable prejudice from the amendments. But given the different onus, this finding cannot be directly transposed into a finding that Sun Life proved it would suffer non-compensable prejudice, which is the test under r. 26.01. Other than noting the stage of the action, the only finding about prejudice the motion judge made was that “Sun Life has conducted its litigation strategy on the basis of the admission” and permitting the withdrawal of the admission would therefore prejudice it. However, since there is no withdrawal of an admission, this ground of prejudice cannot stand.

. PMC York Properties Inc. v. Siudak

In PMC York Properties Inc. v. Siudak (Ont CA, 2022) the Court of Appeal considered principles for motions to strike, in particular the role of pleadings:

(2) Correct approach to motions to strike

[30] Before I turn to examine the Divisional Court’s decision and the particular pleadings of defamation and civil conspiracy, it is helpful to review the principles governing the correct approach for a court to take in general on a motion to strike pleadings, whether under rule 21 or rule 25. It is beyond well-established that the bar for striking a pleading is very high.

[31] In the case of a claim, the question is whether the action has no reasonable prospect of success or whether it is plain and obvious that the action cannot succeed. This high standard applies to determinations of fact, law, and mixed fact and law. The facts pleaded are treated as true unless they are manifestly incapable of being proven. And the pleadings should be read generously, accommodating any drafting deficiencies because cases should be determined on their merits based on the evidence presented before judges at trial. The court should always consider whether the deficiency can be addressed through an amendment to the pleadings and leave to amend should be denied only in the clearest of cases. See: Hunt, at p. 980; R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 17, 22; Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, 447 D.L.R. (4th) 543, at paras. 87-88; Tran v. University of Western Ontario, 2015 ONCA 295, at paras. 16, 26-27; Abbasbayli v. Fiera Foods Company, 2021 ONCA 95, at para. 20.

[32] The correct approach was recently reiterated and summarized by the Supreme Court in Atlantic, at para. 90, as follows:

The threshold to strike is therefore high. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial. The correct posture for the Court to adopt is to consider whether the pleadings, as they stand or may reasonably be amended, disclose a question that is not doomed to fail. [Citations omitted.]

[33] The motivating rationale behind this high standard reflects the liberal construction of rules and pleadings that underlies the Rules of Civil Procedure and the requisite generous approach to pleadings in general, in order, as rule 1.04(1) provides, to “secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.”

[34] Pleadings are very important. They frame the proceedings and the case that must be met. However, long gone are the days where proceedings could be terminated at the early pleadings stage on mere technicalities that can be cured by amendment unless it would result in non compensable prejudice to the opposing party or the administration of justice. Motions to strike can certainly serve a useful purpose at early stages of a proceeding to weed out clearly untenable causes of action that have no chance of success: Imperial Tobacco, at para. 19. But in circumstances where parties are quibbling over whether a known cause of action has been pleaded with sufficient particularity, injudicious use of motions to strike inevitably lead to proceedings becoming mired down, as here, in technical pleadings disagreements that cause unnecessary delay and expense, rather than the adjudication of the dispute on the merits.