Ricci v. Credential

By Daniel Kraus, Senior Associate

Can the pleadings in an Action commenced as an ordinary proceeding be amended at a time where trial is imminent, so as to cause the Action to continue by way of Simplified Procedure? The decision of the Ontario Superior Court in Ricci v. Credential, 2024 ONSC 2319, is instructive, and ultimately affirms the guidelines set out by Ontario’s Court of Appeal in Horani v. Manulife Financial Corporation, 2023 ONCA 51. Briefly put, the case law provides that leave for such an amendment must be granted by the Court at any stage of the Action unless the opposing party would suffer non-compensable prejudice as a result.

In Ricci, the Plaintiff Angelo Ricci commenced an Action against the Defendant, Credential Securities Inc. (“Credential”) for damages in the amount of $500,000.00, suffered as a result of what Mr. Ricci alleges are false and misleading statements made by the Defendant to Mr. Ricci’s employer and third-parties, resulting in Mr. Ricci being terminated from his job and losing potential employment opportunities. Of the total damages claimed, $350,000.00 was for lost income.  

It was only following Mr. Ricci’s passing of the trial record and setting the matter down for trial where the parties’ differing positions as to the duration of the trial came to light. Credential was of the view that the trial would require 15 to 20 days, and estimated that it would be calling 11 witnesses. Mr. Ricci was candid about his inability to afford a long trial, and would advance the position that Credential was litigating in bad faith, in that it was attempting to defend the Action through attrition rather than on its merits.

Accordingly, Mr. Ricci brought a Motion seeking leave to amend the Statement of Claim to reduce the quantum of damages being sought to $200,000.00, which would allow for the trial to proceed pursuant to the mechanisms available under Simplified Procedure (ie. a summary trial).

Credential opposed the Motion, taking the position that leave was required by Rule 48.04 because the matter had already been set down for trial, and that the test for leave could not be met because there had since been no substantial or unexpected change in circumstances. Credential further argued that granting leave would cause it to suffer prejudice on the basis that: a) it would preclude the Defendant from putting forward a complete defence; and b) costs thrown away had been incurred as a result of the Action having been commenced under ordinary procedure (including, and in particular, the duration of examinations for discovery already held, which were within the 7 hour limit for ordinary procedure as opposed to the 3 hour limit for a simplified Rules matter).

Associate Justice S. Rappos heard the Motion and looked to the application of Rule 48.04(1) against the facts of the case. Rule 48.04(1) provides that “a party who has set an action down for trial shall not initiate or continue any motion or form of discovery without leave of the court”.

Relying on the test recently set out by the Court of Appeal in Horani, his Honour ruled that, on the facts of the case before him, Rule 48.04(1) had to be interpreted through the lens of Rules 26.01, 26.02(c), and 1.04(1). In short, his Honour found that the Court is required to grant leave to amend a pleading at any stage of the Action unless the opposing party would suffer non-compensable prejudice. Conversely, and in the context of amending a pleading, the Courts are not to apply the tests predating Horani, where leave to amend may only be granted if the test for leave under Rule 48.04 is met, namely that test requiring evidence of a substantial or unexpected change in circumstances since the matter was set down for trial such that the refusal to grant leave would be manifestly unjust.

In weighing whether or not to grant leave to amend, his Honour summarized the guiding principles that the courts are to follow. In particular, his Honour found that the Court must determine if:  

        i.            The amended pleadings are scandalous, frivolous, vexatious or an abuse of the court's process, or the pleading discloses no reasonable cause of action;

      ii.            The opposing party has suffered actual prejudice, in that they lost an opportunity in the litigation that cannot be compensated as a consequence of amendment, and not merely that the amendment affected the success of the responding party’s plea; and

    iii.            There is a causal connection between the non-compensable prejudice and the amendment.

As highlighted by his Honour, it is the burden of the responding party to demonstrate and provide the specific details of the non-compensable prejudice it will suffer if the requested Order granting leave to amend is granted; however, if the moving party’s delay in seeking the amendment is so lengthy, and if the justification volunteered for the delay is inadequate, the prejudice will be presumed, and the onus will shift to the moving party to rebut it.

While his Honour acknowledged that the ability for a litigant to obtain third-party evidence is curtailed by Simplified Procedure, his Honour was not swayed by Credential’s position that the amendments sought would preclude the respondents from advancing a complete defence, and highlighted Credential’s inaction over the course of the proceedings to engage with the handful of witnesses from whom they intended to lead evidence at trial. The reasons for the decision echo the principles of expeditiousness and proportionality that were expressed by Justice T.A. Heeney in the matter of Sutherland Estate v. London Health Sciences Centre, 2022 ONSC 5942, in which case Justice Heeney aptly pointed out that the Rules for Simplified Procedure do not discriminate against complex cases.

Associate Justice Rapos acknowledged the poor timing of Mr. Ricci’s Motion, but ultimately found that Credential failed to establish non-compensable prejudice, and granted Mr. Ricci leave to amend the Statement of Claim so as to reduce his damages to $200,000.00. 

In support of their unsuccessful position, Credential relied upon the decisions of Thomas v. Aviva, 2022 ONSC 1728, and Edwards v. Alcock, 2022 ONSC 4099, which his Honour was quick to distinguish. In particular, the circumstances of Thomas were such that, while the Plaintiff was able to amend its pleading so as to reduce its damages claim to $200,000.00, on consent of the parties, the learned Judge refused to allow for the Action to proceed by way of Simplified Procedure on the basis that the Defendants had delivered jury notices at the outset of the proceedings. Further, in Edwards (which predates Horani), the learned Judge found that there would be non-compensable prejudice to the responding party Defendants because, among other reasons, the moving party Plaintiff had clearly brought the Motion to limit their cost exposure, after the pre-trial during which the parties agreed to a 12 day trial being scheduled, and after the Defendants (who had delivered a jury notice) had been preparing for a jury trial for a period of 2.5 years.

Further, while his Honour did award Credential costs in the amount of $7,500.00 pursuant to Subrule 76.13(1) for the prejudice it suffered in completing examinations for discovery pursuant to ordinary procedure, Mr. Ricci was awarded costs of the Motion in the amount of $13,000.00. As for Credential’s submissions that senior counsel would not have been nearly as involved had the Action been commenced under the Rules of Simplified Procedure, and therefore would not have incurred as much costs, his Honour reserved that determination for the trial judge.  

In today’s climate, where the Courts are still working through and attempting to find novel solutions for the considerable backlog our civil Court system is facing, it is more likely than not that the Courts will be inclined to have matters fast-tracked, and will be quicker to embrace the philosophies of expeditiousness and proportionality espoused in Sutherland Estate and Ricci.

“Time is of the essence”: Lessons in Real Estate Transactions - Sewa More et al. v. 1362279 Ontario Ltd. and 3 Gill Homes Inc. v. 5009796 Ontario Inc.

By: Daniel Kraus & Joseph Ma

In real estate transactions, disputes can arise for various reasons, including seemingly straightforward elements of an Agreement of Purchase and Sale (“APS”), such as the date and time of closing. Two recent decisions released by the Ontario Court of Appeal have provided the public with direction on the interpretation of a “time is of the essence” clause found in an APS and deserve a deeper look. These cases are Sewa More et al. v. 1362279 Ontario Ltd., 2023 ONCA 527 and 3 Gill Homes Inc. v. 5009796 Ontario Inc., 2024 ONCA 6.

Sewa More deals with three separate but identical APSs for three neighbouring townhomes, and the failure of each transaction to close. According to the terms of the APS, the transactions were each scheduled to close on October 1, 2020, but ultimately could not be completed on that date as a result of delays in the purchasers’ obtaining financing. The APS provided for a boilerplate “time is of the essence” clause, but did not specify an exact time on October 1, 2020, by which the transaction was to close. This notwithstanding, the Vendor’s solicitor executed and delivered to the Purchasers’ solicitor, a Document Registration Agreement (“DRA”) stating “[if] the purchase agreement does not specify a closing time and a release deadline has not been specifically inserted, the release deadline shall be 6:00 p.m. on the closing date”. On the day of closing, the mortgagee was delayed in forwarding the mortgage proceeds to the Purchasers’ solicitor as a result of complications caused by the Covid-19 Pandemic. Upon receipt of the mortgage funds that day, the Purchasers’ solicitor attempted to wire the same to the Vendor’s solicitor, but ultimately the mortgage funds would only arrive in the latter’s trust account on the morning of October 2, 2020. At approximately 5:11 p.m., on October 1, the Vendor's solicitor wrote to the Purchasers’ solicitor terminating the APSs, alleging that the purchasers were unable or unwilling to close. In an attempt to salvage the transactions, the Purchasers’ solicitor explained the delay and sought an adjustment of the closing date to allow for the mortgage funds to be delivered, but the attempt was refuted by the vendor.

Both parties brought competing motions for summary judgment, with the Purchasers seeking specific performance of the three APSs, and the Vendor seeking a forfeiture of the deposits paid out by the Purchasers. In particular, the Vendor sought a strict application of the “time is of the essence” clause and a finding that the APSs were terminated, in that closing funds had to be tendered no later than 5:00 pm, being the cut-off time by which the Teraview System permits transfers to be completed. In their analysis, the Motion Judge found that, notwithstanding the terms of the DRA, a “time is of the essence” clause cannot be relied upon when no such specific time is provided in the APS. The Motion Judge also found that the Vendor was not entitled to rely on the "time is of the essence” clause because it acted unreasonably and in bad faith by prematurely cancelling the transaction and was clearly not willing to close on the agreed upon date. The evidence before the Motion Judge showed that the Purchasers were denied an opportunity to fully conduct a Tarion New Home Warranty Inspection, were refused a copy of the deficiency list from the Vendor, and that the Vendor did not sever the properties as required for their proper registration. Further, the Motion Judge determined that, during the pandemic, it was common for lawyers to work together to complete the rest of the closing steps after the closing of the Teraview System, but before midnight, on closing day.  

The Vendor Appealed to the Ontario Court of Appeal, which upheld the Motion Judge's decision, stating that it was open for the Motion Judge to find that purchase transactions would usually be honoured despite minor delays in the delivery of closing funds. The Court of Appeal also underscored that an innocent party must itself be ready, desirous, prompt and eager to carry out the agreement in order to take advantage of the “time is of the essence” clause. However, the Court of Appeal elected not to make a determination on whether, as a matter of law, a purchaser can rely on the fact that their counsel is in receipt of closing funds in order to cure minor delays in delivering the same to the Vendor, for that point was moot due to the clear repudiation by the Vendor of the APSs just after 5pm on October 1.

The Courts’ holistic approach in interpreting a “time is of the essence” clause as set out in Sewa More, might, at first glance appear to conflict with the rulings made by the Court of Appeal in 3 Gill Homes Inc. v. 5009796 Ontario Inc., 2024 ONCA 6, which decision was released only 5 months later. 3 Gill Homes Inc. concerns the purchase and sale of three new build properties between two sophisticated parties. The evidence showed that two of these transactions were completed as intended, and that the parties treated the closing date as flexible despite each involving APSs containing “time is of the essence” clauses.  In particular, the parties missed deadlines imposed by the two APSs that ultimately were completed. The remaining and subject transaction involved an APS that was amended to reflect a closing date of January 28, 2022, and include a “time is of the essence” clause such that the closing funds had to be transferred by   3:00 pm on closing day. The Vendor wrote to the Purchaser several times prior to the closing date providing reminders as to when the closing funds were due. On the day prior to closing, the Vendor sought an extension of 5 additional days, but was rejected. Further, on the closing date, at 2:47 p.m., the Purchaser’s solicitor wrote to the Vendor’s solicitor advising that the closing funds had been attained, but those funds would only be transferred at 3:35 p.m. The Vendor’s solicitor advised the Purchaser’s solicitor, at 3:10 p.m. that day, that their instructions were not to close the transaction due to the missed deadline, thus treating the APS as being terminated, but would not seek to keep the deposit.

The Purchaser therefore brought an Application seeking a declaration that the Vendor breached the APS, and that the same be deemed unconscionable. The Application Judge ruled in favour of the Vendor, and recognized that although the result seemed harsh, it was not unfair for the Vendor to enforce the payment deadline in light of the “time is of the essence” clause. The Application Judge further found that the amendment to the APS supported a departure from the parties’ conduct in respect of the previous transactions, which therefore could not be relied upon to undermine the clear deadline that was agreed to. Moreover, the Application Judge found the correspondence leading up to the closing date to support the seriousness of the deadline and the enforcement of "the time is of the essence” clause. Importantly, the Application Judge acknowledged the Courts’ residual equitable jurisdiction to relieve against the breach of a “time is of the essence” clause, but concluded that such power not be used absent unfair or unjust conduct by the party that seized upon said clause, as the Vendor appears to have done in Sewa More.

The Court of Appeal sided with the rulings of the Application Judge in 3 Gill Homes Inc., stating that “it would be an unwarranted intervention into the freedom of contract for a court to alter the APS and its closing time”.

The Court of Appeal’s decision in 3 Gill Homes appears inconsistent with the earlier, more liberal, approach taken by the Court to interpret the “time is of the essence” clause in Sewa More, but distinguishing factors between the two exist.  In Sewa More, the Court considered various factors in reaching their decision. Firstly, it recognized the context surrounding the delay in the Purchasers’ receipt of mortgage funds as a contributing factor to the failure to close the transactions on the scheduled date. The Court deemed this delay as not constituting a fundamental breach of the agreement, which influenced its more lenient interpretation of the “time is of the essence” clause. Additionally, the Court considered the Purchasers’ willingness to proceed with the transactions despite the delay. The Court emphasized that the purpose of the “time is of the essence” clause is to ensure that parties act diligently and in good faith to complete the transaction within a reasonable timeframe. In light of the Purchasers’ cooperative attitude and lack of any substantial harm caused by the delay, the Court concluded that it would be unjust to allow the Vendor to terminate the agreement.

Sewa More and 3 Gill Homes highlight the importance of having clear timelines in real estate agreements, and the potential consequences of failing to meet deadlines. The interpretation of the “time is of the essence” clause can vary depending on the specific circumstances of each case. Courts may take a more liberal or strict approach, considering contextual factors such as the nature of the breach, the reason for the delay, the parties' conduct, and the overall fairness of enforcing the agreement.

Buyers and sellers involved in real estate transactions should be aware of their contractual obligations and the implications of any delays. Seeking legal advice and guidance is highly recommended to understand the specific terms of the agreement and to navigate any potential disputes that may arise.

Adams v. Body Plus, 2024 ONSC 315

By: Fahad Warraich

Rule 29.1.03 of the Rules of Civil Procedure requires that parties to an Action, who intend to obtain evidence under any of Rules 30 – 35 draft and agree upon a Discovery Plan following the close of pleadings.  In the recent decision of Adams v. Body Plus Nutritional Products et al., 2024 ONSC 315, his Honour Associate Justice Rappos made clear that parties who execute a Discovery Plan under Rule 29.01.03 must meet their obligations to abide it or risk exposing themselves to sanction from the Court.

In Adams, the Plaintiff moving parties sought an Order for service of a further and better affidavit of documents under subrule 30.06(b) of the Rules on the grounds that the Defendants were in default of provisions of a Discovery Plan which had been negotiated and to which the Defendants had agreed.

In considering the Motion for a further and better affidavit of documents, Associate Justice Rappos noted that the parties had engaged in nine-months of negotiation respecting the Discovery Plan, and had ultimately agreed on a Discovery Plan which identified a list of topics in respect of which the parties were required to produce corresponding documents in their respective possession, control or power. The Defendants produced a total of 550 documents, most of which the Plaintiffs alleged to be either marginally relevant to the litigation and/or otherwise entirely unrelated to the agreed upon topics as set out in the Discovery Plan. In particular, the Plaintiffs alleged that the Defendants failed to produce a single document in relation to a number of the agreed upon topics, and that it appeared that insufficient steps had been taken by the Defendants to conduct a diligent search of their records to produce all relevant documents. 

In response, the Defendants took the position that the productions sought by the Plaintiffs were neither proportionate nor relevant. The Defendants also relied on certain provisions of the Discovery Plan which stated, among other things, that the parties may need to adjust the Discovery Plan as the matter evolves. Broadly speaking, the Defendants argued that Discovery Plans are not designed to pre-emptively settle all discovery-related disputes.

Associate Justice Rappos granted the Plaintiff’s Motion and Ordered the Defendants to serve further and better affidavit of documents.  His Honour found that the Defendants had not produced any documents relating to three of the topics set out in the Discovery Plan, and that the Defendants’ productions in general were more limited in scope than that which was set out in the Discovery Plan.

His Honour’s reasons also disclose the Court’s concern that the Defendants had participated in nine-months of negotiating the Discovery Plan, only to then take the position that some of the topics set out in that Discovery Plan were disproportionate and would lead to overproduction. This stance was, in the Court’s view, contrary to the spirit of Rule 29.1, which encourages discovery as a collaborative, rather than a contentious, process. The Court noted that while the positions taken by the Defendants might have been appropriate had the imposition of those terms within the Discovery Plain under subrule 29.1.05(2) been resisted, it is decidedly inappropriate to negotiate a discovery plan to only thereafter argue against its terms.

On disposition of the Motion, the Court ultimately granted $30,000.00 in costs to the Plaintiffs, serving as a reminder of the consequences of parties failing to comply with discovery obligations and the Courts’ willingness to impose sanctions to enforce compliance of the same.