In “Defence” of Rule 21.01(b) and Motions to Strike
In Shillington v. Stover, 2023 ONSC 1463, Regional Senior Justice C. Macleod considered a motion by one of the defendants, Million Dollar Round Table (“MRDT”), to strike the statement of claim against it as disclosing no cause of action under Rule 21.01(1)(b) of the Rules of Civil Procedure.
History of the Litigation:
The plaintiff in this matter, John Shillington, alleged that his investment advisor, Martin Stover, and his associated investment firm, Empire Life Investments, defrauded him, and that $25,000 of his funds had been lost. He pursued legal action against these entities under the Simplified Procedure in Rule 76.
The statement of claim also named MRDT as a defendant. MDRT was a trade association of insurance professionals and a not-for-profit organization based in Illinois in the United States. The plaintiff alleged that Mr. Stover was a member of MDRT and that a fraudulent letter sent by Mr. Stover in 2019 contained the MDRT logo.
MRDT was served with the claim on May 21, 2021 and filed a Notice of Intent to Defend on June 10, 2021. It later filed a lengthy statement of defence and crossclaim on June 30, 2021. Empire Life defended the action, meanwhile, the Stover defendants did not.
No further action took place in the action until October 2022, when MRDT changed counsel and its new counsel served a motion record to strike the pleading pursuant to Rule 21, and in the alternative dismiss the claim for delay pursuant to Rule 24.
The court noted that up to that point, none of the parties took any steps to move the file forward as required by Rule 76. No affidavits of documents were exchanged, no discoveries took place, no settlement discussions were had, nor was the matter set down for trial.
Issues in Dispute:
MRDT argued that pursuant to Rule 21, the claim against it should be struck for failing to disclose any cause of action against it. The plaintiff, Mr. Shillington, argued that because Rule 21.01(2) required a Rule 21 motion to be brought “promptly”, MRDT’s motion should be denied given that MRDT had delivered a statement of defence and waited almost two years from the time it was served with the claim to file its motion to strike.
If it was unsuccessful under Rule 21, MRDT sought to dismiss the action against it for delay under Rule 24 on the basis that the plaintiff had inordinately delayed in moving the file forward.
Analysis:
The motions judge began by reiterating that no evidence is admissible on a Rule 21.01(1)(b) motion, and that claims should only be struck when it is “plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action.”
His Honour noted there are nuances to this test. He stated that the Court will not accept facts that are “merely bald conclusions unsupported by material facts or facts that are patently ridiculous or incapable of proof”.[1]
The Statement of Claim:
After reviewing the statement of claim, Macleod J found there was no prospect of success against the MRDT defendant. While the allegations of a duty of care against the Stover and Empire Life defendants were readily understandable given the relationship between the parties, it was not apparent in the pleadings how a voluntary organization such as MRDT owed a duty of care to an investor, such as the plaintiff.
The Judge noted that the Courts have been reluctant to extend liability for individual financial losses to regulators or statutorily recognized organizations, let alone voluntary organizations such as MRDT.
Given that a duty of care of a voluntary association of professionals to members of the public doing business with its members was not an automatically recognized category in the law, Justice Macleod found that the onus was on the plaintiff to include sufficient material facts and pleadings in the statement of claim for the court to potentially decide on whether such a duty existed.
In this case, the statement of claim referenced MRDT in only three paragraphs, aside from the prayer for relief. One such reference was that MRDT “was negligent”.
Justice Macleod held that a pleading of negligence was a conclusion that could not stand alone. It required a pleading of the material facts the plaintiff relied upon to establish its claim against MRDT.
The statement of claim in this case contained no reference to any facts that suggested MRDT owed a duty of care, or that it had any role in regulating, policing, or monitoring its members.
Justice Macleod noted that had this motion been brought immediately after the claim was served, before delivering a defence, MRDT’s motion to strike would have been granted without hesitation. However, the delivery of a statement of defence and the delay in bringing the motion gave him pause.
Delay in Bringing Rule 21 Motion:
His Honour reiterated the requirement within the provisions of Rule 21 that any such motions be brought promptly and that egregious delays in bringing such a motion could result in a denial of the motion.
However, Justice Macleod noted that it would be “antithetical to the aim of litigation efficiency to insist that a claim that has no chance of success cannot be the subject of a rule 21 motion because of delay, and must be brought to trial” or to a summary judgment motion.[2]
Macleod J found that the delay in this case by MRDT was not inordinate and was brought within days of MRDT retaining its new counsel. Furthermore, there was no basis for the plaintiff to argue that it had done anything substantial in the file in reliance upon the defence since the matter still remained at the pleadings stage.
Statement of Defence:
Justice Macleod highlighted that a more complex issue was the statement of defence filed by MRDT. This is because the delivery of a defence can engage Rule 2.02, which holds that no motion that attacks “a proceeding, or step, document or order” can be brought without leave of the court “if the moving party has taken any further step in the proceeding after obtaining knowledge of the irregularity.”[3]
However, Macleod J noted that the delivery of a defence is not fatal in all circumstances. His Honour cited the following passage from the Ontario Court of Appeal decision in Potis Holdings Ltd. v. The Law Society of Upper Canada, 2019 ONCA 618:
“…. While generally a defendant should move to strike a claim as disclosing no reasonable cause of action before filing a statement of defence, in some instances a defendant may bring such a motion without leave even after delivering a defence. One such instance is where it is obvious from the defendant’s pleading that the defendant takes issue with the sufficiency of the plaintiff’s claim.”[4]
In its defence, MRDT pleaded that the within action was frivolous, vexations, and ought to be stayed or dismissed. It denied it had any authority to regulate or enforce professional standards or that it had any knowledge of the investment transactions in this matter.
However, the defence of MRDT also made a number of positive assertions about the MRDT defendant that were absent from the claim including that the MRDT had a code of ethics and by-laws and that each of its members pledged to follow them, that members are obligated to report complaints or proceedings against them, and that the right to use trademarks and logos of MDRT is terminated when membership expires or is terminated. It also plead that the Stover defendants were members in good standing until 2016.[5]
His Honour noted that it was an interesting legal question as to whether these new facts/pleadings should be considered in the decision to strike the statement of claim. Ultimately, he concluded that it is unnecessary to answer this question definitively in this motion, as the motion was not argued on this basis. But His Honour did indicate that even if the factual admissions in the defence were treated as admissions, they were not, in his opinion, sufficient to meet the threshold of disclosing a reasonable cause of action against MDRT. [6]
Decision:
Therefore, Justice Macleod concluded that the claim against MDRT should be struck entirely, notwithstanding the delivery of a defence and its contents.
His Honour also denied the plaintiff’s leave to amend, citing the plaintiff’s own delays and failure to move the file forward pursuant to the Simplified Procedure requirements in Rule 76. Given the highly speculative cause of action against MDRT, Justice Macleod had no confidence that allowing the plaintiff to amend their claim would be a useful exercise, but rather would cause further delay and drive up costs in the matter.[7]
Having already granted the motion to strike pursuant to Rule 21.01(b), Justice Macleod briefly discussed the alternative relief sought to dismiss the action for delay pursuant to Rule 24.
His Honour found that he likely would not have dismissed the action for delay, given the high burden on the defendants to prove the plaintiff’s delay was “inordinate or inexcusable” and prejudiced the defendant. Macleod J noted that the defendants were arguably in breach of their own obligations under the Rules for their failures to deliver their affidavit of documents pursuant to timelines in Rule 76.
Instead, His Honour noted that, but for the successful motion to strike, he would have ordered a timetable for the parties to complete any outstanding steps.
Conclusion and Takeaways:
At its broadest, this decision demonstrates that filing a statement of defence is not automatically fatal to a defendant’s subsequent motion under Rule 21.01(b) to strike a pleading for failing to disclose any reasonable cause of action.
However, this decision also provides a warning to defendants to be wary of including material facts or pleadings in their defence that could establish a cause of action against them, even when the statement of claim itself discloses no reasonable cause of action against the defendant. As Justice Macleod indicated, these material facts and pleadings in the defence, could be treated as admissions and included as part of the Rule 21.01(b) analysis.
Furthermore, this decision provided some useful direction on the treatment of delay for Rule 21.01(b) and Rule 24 motions in Rule 76 Simplified Procedure matters. It urges all parties to move quickly towards efficient resolution of the matter and warns that a party’s failure to comply with their respective obligations under Rule 76 will impact the success of any motions to strike a pleading or dismiss a claim for delay.
[1] Shillington v. Stover, 2023 ONSC 1463, at para 15, citing Trillium Power Wind Corporation v. Ontario (Natural Resources), 2013 ONCA 683 (CanLII)
[2] Ibid, at para 27, citing – Brummell v. Ontario (Attorney General), 2014 ONCA 828
[3] Rule 2.02 – R.R.O. 1990, Reg. 194: RULES OF CIVIL PROCEDURE
[4] Potis Holdings Ltd. v. The Law Society of Upper Canada, 2019 ONCA 618 at para 14.
[5] Shillington, supra note 1, at para 32
[6] Ibid, at paras 33-34.
[7] Ibid, at paras 37-38.