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In a recent case, Justice Robert F. Goldstein of the Ontario Superior Court of Justice refused to allow a defendant to amend its pleading for tactical reasons just before a scheduled summary judgment motion where the amendment was directly contrary to previous evidence and pleadings.
The defendant, DB, along with his sister and his mother, gave unconditional guarantees on a loan provided by the plaintiff in 1982 to their family business. At the time the loan was made and the guarantees were signed, DB was the company’s executive vice president. The business went sideways in 1990 and the defendants were sued on their guarantees. As is typically the case in situations such as this, the defendants filed a statement of defence and counterclaim in which they admitted most of the facts in the claim but argued that the quantum claimed was incorrect.
Numerous pieces of litigation erupted from the failure of the business, including the present action on the guarantees, which ultimately gave rise to this motion. Up until the present motion (in all three pieces of litigation) the defendant, DB, did not dispute the validly of is guarantee. In fact, DB relied on the validity of the guarantee in order to prosecute the other actions and to maintain a counterclaim in the present action. Ultimately the action to collect on the guarantees was held in abeyance on agreement of counsel pending the outcome of other litigation. Following the finalization of the other litigation the plaintiff reinvigorated its action, including bringing a motion for summary judgment against DB.
DB then brought a motion to amend his pleading, for the first time taking issue with the validity of the guarantee. On the motion, the plaintiff’s counsel took the position that the defendant’s motion for an amendment constituted a withdrawal of omissions made in the 1990 statement of defence. As a result, it was argued, the relevant rule was 51.05 of the Ontario Rules of Civil Procedure. The defendant’s counsel argued that this was merely an amendment and should be dealt with under Rule 26.01 of Ontario Rules of Civil Procedure.
Justice Goldstein held in favour of the plaintiff and found that Rule 51.05 applied as the defendant was, in effect, attempting to withdrawal omissions made in the original pleadings:
51.05 An admission made in response to a request to admit, a deemed admission under rule 51.03 or an admission in a pleading may be withdrawn on consent or with leave of the court.
This rule is clearly a more arduous challenge for the defendant to surmount than the permissive Rule 26.01:
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.
Justice Goldstein set out the test for compliance with Rule 51.05 as follows:
“the parties seeking to withdrawal an omission must seek the following:
(1) the proposed amended raises a trial able issue;
(2) the omission was Inadvertence or resulted from wrong instructions;
(3) the withdrawal will not result in any prejudice that can not be compensated for in costs.”
Having set out the test Justice Goldstein indicated that the defendant had failed all three elements.
No triable issue
On the issue of whether the amendment raises a triable issue, the court held that it did not. The defendant was seeking to reverse a position maintained in this and other litigation for 22 years. His position on the motion and in the proposed amended pleading was directly contrary to previous evidence and pleadings.
Inadvertence or wrong instructions
Justice Goldstein held that the admission that the guarantee was enforceable could not have been made by inadvertence as the defendant had taken a different position in other litigation “including in sworn evidence”.
Prejudice to plaintiff
The court held that the prejudice to the plaintiff “was obvious and clear [and] could not be compensated by cost”.
The simple upshot of this case is that it is evident that the Ontario Superior Court of Justice will not lightly grant amendments to pleadings for tactical reasons, where omissions are sought to be withdrawn. Flip-flopping in pleadings for strategic reasons (in this case to avoid summary judgment) will not be allowed unless the onerous test set out for the withdrawal of omissions under Rule 51.03 is met.