Amending Pleadings – A Reminder of Relevant Rules and Requirements
The recent decision in Wiseway Global Canada Consulting Ltd. v. Shen, 2024 ONSC 4005, concerned a motion before the Superior Court of Justice seeking to make a series of amendments to a Statement of Claim after the completion of discoveries, pursuant to Rule 26.01 of the Rules of Civil Procedure.
Although amendments to pleadings at late stages of a proceeding are not uncommon, and the Rules of Civil Procedure grant the ability to amend pleadings at any time, there are still important criteria to be considered when a motion to amend a pleading has been brought. Wiseway Global Canada Consulting Ltd. v. Shen (“Wiseway”)serves as a strong reminder of the criteria to be considered when deciding whether or not to amend pleadings, or whether to oppose a party seeking leave to amend their pleadings.
The Rules of Civil Procedure
The ability to amend pleadings is addressed in Rule 26 of the Rules of Civil Procedure. Rule 26.01 sets out the basic principles of the ability to amend any pleading. Rule 26.01 states:
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.
Rule 26.01 is extremely broad and explicitly states that leave to amend pleadings shall be granted, at any stage, unless the narrow grounds of prejudice that can not be compensated for by costs or an adjournment are met. The ability to amend a pleading at any stage is so broad that the rules contemplate and set out procedures for amendments as late as trial.[1]
The mandatory nature of the word “shall” in Rule 26.01 means that the court must grant leave to amend unless there is non-compensable prejudice, the proposed pleading is scandalous, frivolous, vexatious, an abuse of process, or the amendment does not disclose a reasonable cause of action. A responding party has the onus to prove prejudice is created by the proposed amendments.[2]
Rule 26.02 states that following the close of pleadings, consent or leave of the court is required to make an amendment. Since the plaintiff in Wiseway was seeking to amend their Statement of Claim after the completion of discoveries, therefore the leave of the court was required.
Any proposed amendments to a pleading are subject to the general rules of pleadings applicable to all pleadings as outlined by Rule 25.06 of the Rules of Civil Procedure. This includes the prohibition against pleading evidence as contained in Rule 25.06(1), and only pleading conclusions of law where the material facts supporting them are plead.
The Amendments
In Wiseway, the plaintiff proposed a series of amendments under four headings which laid out accusations of fraud and other improper investment activities. The headings of the challenged amendments, which took up 24 paragraphs of the amended pleadings were as follows:
- “The Ponzi Scheme Perpetrated by Lu Shen and Yuerong Wang”
- “December 2019: Fraud In Relation to the First Tranche and Wiseway’s Investment of $2,200,000”
- “January-March 2020: Fraud In Relation to the Second Tranche and Wiseway’s Investment of $2,800,000”
- “April-June 2020: Fraud In Relation to the Third Tranche and Wiseway’s Investment of $700,000”
The Defendant, CTBC Bank (Canada) argued that the proposed headings and the corresponding paragraphs are improper because they do not follow the proper rules of pleadings and exist only to colour the proceedings and embarrass CTBC Bank. CTBC Bank accused the amendments of being repetitive and redundant to pleadings already contained in a Reply previously submitted by the plaintiff.
The plaintiff took the position that the pleadings were proper and that there was no non-compensable prejudice being caused the CTBC Bank by the amendments proposed.
Analysis and Decision
Associate Justice Robinson first addressed issues of redundancy and repetition broadly, as well as alleged inconsistencies between the Plaintiff’s proposed amendments and the Plaintiff’s prior Reply. It was determined that, any prejudice which may exist from this inconsistency was addressable through the amendment of the Statement of Defence, which is permitted under Rule 26.05 of the Rules of Civil Procedure.
Regarding the first header and facts alleging a “Ponzi Scheme”, it was noted that a Ponzi Scheme has a specific definition and character beyond that of an ordinary fraud. Associate Justice Robinson stated that the pleading of the fact of a “Ponzi Scheme” was a pleading alleging a specific type of fraud, and that the facts plead under the heading did not support the existence of a Ponzi Scheme. As such Associate Justice Robinson concluded that the proposed header was therefore scandalous, improper and inserted for colour, however, he noted that a revised header deleting only the word “Ponzi” was acceptable, leading to a minimal change in the permitted amended pleading.
Another impugned section of the pleadings occurred in paragraphs 61 and 62 of the amended Statement of Claim. Wiseway also attempted to plead a series of extracts related to a contempt of court finding against two of the individual defendants. The paragraphs impugned were considered to be primarily extracts from a judge’s endorsement related to the contempt of court hearing. Justice Robinson determined that these pleadings were also not permissible as they did not consist of material facts but were instead evidence.
Associate Justice Robinson also struck some clauses that constituted pleading of evidence. For example, a pleading with the clause “as confirmed by Aaron Zhong in his email” was determined to be an evidentiary pleading and not a statement of fact, however the remainder of this paragraph was allowed to stand, once the clause regarding the evidence was removed.
The final change forced upon the amended Statement of Claim by Associate Justice Robinson was the removal of a paragraph making legal argument, and not drawing conclusions.
Despite making arguments that each of the controversial 24 paragraphs and headers were prejudicial, none of the paragraphs were found to meet the strict threshold of being so prejudicial that it could not be compensated.
In total, of the 24 paragraphs that CTBC Bank sought to have leave denied for amendment, only one clause in one sentence, one word in one heading and 3 paragraphs were not granted leave. The impugned paragraphs were all denied on the basis that the plead evidence or arguments or conclusions of law, contrary to Rule 25.06 of the Rules of Civil Procedure.
Takeaways
The ability to amend pleadings is broad, even in the late stages of a proceeding. Plaintiffs and Defendants alike are often able to amend their pleadings as necessary, often on consent or with little opposition, which is the designed intention of the Rules of Civil Procedure.
It is important for parties seeking to amend their pleadings to remember the basic rules of pleadings and stick to the pleading of material facts and not evidence or argument, even if the pleading is happening at a time where substantial supporting evidence has been submitted. Failing to follow the basic rules of pleadings is one of the most common and successful challenges to proposed amendments to pleadings.
Parties amending pleadings should also be judicious in their use of common legal terms. As exemplified by the exclusion of the word “Ponzi” in this matter, certain common terms or phrases may have specific legal meanings. If these phrases are going to be used, lawyers should make certain that the material facts that set out the specific allegation are included in the pleading.
Parties responding to amendments being sought should seriously consider the ability to address any perceived prejudice in their own amended pleadings. If a perceived prejudice or breach of the rules, such as inconsistency between pleadings or repetition of arguments exists, the responding party should note that, upon the amending party being granted leave to amend, the responding party will also be permitted to amend the responding pleading, in accordance with rule 26.05 of the Rules.
Taking the above under consideration could help parties come to agreements and avoid potentially expensive and generally unsuccessful motions disputing the amendments of pleadings.
[1] See Rule 26.06 of the Rules of Civil Procedure.
[2] 1588444 Ontario Ltd. v. State Farm Fire and Casualty Company, 2017 ONCA 42 at para. 25