By Athina Ionita
Andrin Hillsborough Limited v. Eliaszadeh, 2021 ONSC 3229, provides a helpful discussion on pleading bad faith, and the importance of pleading with sufficient clarity.
This decision relates to the defendants’ motion for leave to amend their Statement of Defence, and to add a Counterclaim. The plaintiff opposed the motion, and also brought a cross-motion to strike portions of the original Statement of Defence, as well as the Counterclaim.
The underlying action arose from a real estate purchase and sale dispute. The sale did not close as scheduled, and the plaintiff claimed damages of $500,000 as a result. The plaintiff further alleged that the defendants misrepresented their employment status, country of residence, and ability to obtain financing.
The defendants, in their amended statement of defence and counterclaim, alleged that the plaintiff misrepresented the layout, size, shape, materials and drawings of the property, among other claims. Further, one of the defendants alleged that the plaintiff’s actions regarding the sale of the property contributed to the defendant’s near-death motor vehicle accident.
The Master considered Rules 26.01 and 25.11 in his analysis. Rule 26.01 provides that on a 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 25.11 grants the court the ability to strike out or expunge all or part of a pleading.
The Master noted that amended pleading must be legally tenable. It is unnecessary to tender evidence to support the claims, nor is it necessary for the court to consider whether the amending party will be able to prove its amended claim. The court must assume that the facts pleaded in the proposed amendment are true, unless ridiculous or incapable of proof.
The court must consider whether the pleadings disclose a cause of action. The court is not to make findings of fact or weigh evidence. Amendments are to be read generously, and allow for drafting deficiencies.
The Master considered whether to strike various paragraphs of the pleadings, described below.
Paragraph on Settlement Privilege
The Master noted that references to settlement offers should not be included in a pleading. The Master rejected the defendants’ characterization of a referenced letter as a demand letter, and concluded that the letter satisfied the test for settlement privilege:
- litigation was contemplated when the letter was sent (one month after the sale did not close and one month before this action was commenced);
- the notation “Without Prejudice” demonstrated that it was made with the express or implied intention that it would not be disclosed to the court in the event that negotiations failed; and
- the purpose of the letter was to attempt to effect settlement, or as the letter stated, an “early resolution”.
Accordingly, the Master determined that the paragraph relating to settlement should be struck.
Bad Faith and Mental Anguish/Distress
The Master noted that the term bad faith is a legal conclusion that cannot be pleaded without sufficient particulars. Pleading bad faith engages Rule 25.06(8) which requires full particulars where fraud, misrepresentation, breach of trust, malice or intent are alleged.
In the Master’s view, the defendants had not pled sufficient particulars in support of a claim for bad faith. While some particulars appeared to be present, despite a generous reading allowing for drafting deficiencies, the Master felt that the pleadings remained unclear.
The defendants argued that certain paragraphs in their pleading were part of the “narrative” in support of their claim for breach of the duty of good faith and honest performance. However, the Master noted that more than a narrative is required to advance this claim. The pleadings were lacking a reference to the duty of good faith and honest performance.
The elements of each cause of action and supporting particulars must be identifiable and stated clearly so that the plaintiff knows what claims are being advanced against it, and to define the scope of documentary and oral discovery as well as the ultimate disposition of the action.
The Master accordingly struck the references to bad faith in the impugned paragraphs, with leave to amend.
The defendants also sought to add a crossclaim in tort for mental anguish and distress, relating to an accident suffered by one of the defendants, and an alleged consequential loss of income and employment opportunities. Both defendants also looked to seek damages for emotional and financial distress.
The Master found these claims problematic as well. None of the elements for any claims grounded in negligence had been pled, including: a duty of care; breach of the standard of care; or damages caused by a breach of the standard of care which were not too remote in law.
Similarly, the Master found that the elements of intentional infliction of mental suffering, which the defendants also sought to claim, had not been pled. The applicable paragraphs were accordingly struck.
The Master discussed the lack of sufficient clarity and precision in the proposed amendments to the pleadings. The defendants pled that they were unable to obtain financing for the property purchase due in part to the unexpectedly low appraised value of the property, and to the plaintiff having rejected their abatement request.
The defendants also pled that one of the reasons the appraised value of the property was lower than expected was due to the presence of a nearby development, which they alleged the plaintiff knew about. The Master found that there was no link between the defendants’ claims in this regard, and the allegations with respect to the appraised value, inability to secure financing and the plaintiff’s denial of an abatement.
Finally, the Master noted that one paragraph pled evidence by referring to documents obtained by the defendants.
The impugned paragraphs were accordingly struck.
Although pleadings should be read generously, there are some pleading deficiencies that cannot be forgiven. Bad faith is a legal conclusion that requires sufficient particulars when pleaded. The elements of each cause of action and supporting particulars must be identifiable and stated clearly, so that the responding party knows what claims are being advanced against it.
Pleadings in negligence should refer to the elements of negligence. Further, pleadings should not refer to settlement offers. Failing to respect these requirements may result in the offending paragraphs of a pleading being struck.