Horst Tyson Dahlem Professional Corporation v John F Schneider Professional Corporation (Canmore Legal Services), 2013 ABQB 601

Court of Queen ’ s Bench of Alberta Citation: Horst Tyson Dahlem Professional Corporation v John F Schneider Professional Corporation (Canmore Legal Services), 2013 ABQB 601 Date: 20131025 Docket: 0601 07392 Registry: Calgary Between: Horst Tyson Dahlem Professional Corporation Plaintiff/Applicant - and - John F Schneider Professional Corporation (operating as Canmore Legal Services) and John F Schneider Defendants/Respondents Corrected judgment: A corrigendum was issued on October 25, 2013; the corrections have been made to the text and the corrigendum is appended to this judgment. _ ________________________________________ ______________ Memorandum of Decision of the Honourable Mr.

Justice B. A. Millar _________________________________________ ______________ [ 1 ] The Plaintiff applies to amend its Statement of Claim which was originally filed in 2006. The proposed amendment alleges

that the acts described in the original pleading constitute fraudulent misrepresentation by the Defendants. The Plaintiff also seeks to add to the remedies sought, an order pursuant to section 178(1) (

e) of the Bankruptcy and Insolvency Act , RSC 1985, c B-3, that the judgment survive bankruptcy. [ 2 ] The Defendants submit that the amendment alleging fraudulent misrepresentation should not be allowed as it would cause serious prejudice to the Defendants, considering the passage of time and the failure of the Plaintiff to amend earlier shows bad faith. Moreover, the Defendants submit the evidentiary foundation for the amendment is insufficient given the requirements under Rule 13.7 of the Alberta Rules of Court , Alta Reg 124/2010 for pleading fraudulent misrepresentation.

Finally, they submit that the amendment constitutes a new claim that is barred under the Limitations Act , RSA 2000, c L-12. [ 3 ] I deny this application on the basis that given the passage of time, it would cause serious prejudice to the Defendants and that the Plaintiff has not met the requirements under Rule 13.7 to plead fraudulent misrepresentation with sufficient particulars. As a result, it is not necessary to deal with the issues under the Limitations Act or the second proposed amendment regarding the Bankruptcy and Insolvency Act .

Factual Background [ 4 ] The parties entered into a contract on February 23, 2006 which included provisions on the payment for legal services provided by the Plaintiff corporation to the Defendants. The Plaintiff filed a Statement of Claim on June 20, 2006 for the outstanding amount that it claims is owed to it by the Defendants for unpaid invoices. Questioning of the Defendants was completed in the later part of last year.

On April 5, 2013, the Plaintiff filed the current application to amend the Statement of Claim. [ 5 ] Since hearing this application on May 2, 2013, the Plaintiff indicated in its reply brief that it seeks to file a Revised Proposed Amended Statement of Claim that it says more clearly outlines the fraudulent misrepresentation allegation. The Plaintiff also filed a Supplemental Affidavit on May 27, 2013 that describes “Prior Statements” made by the Defendant to the Plaintiff.

Law and Analysis General Principles on Amending Pleadings [ 6 ] Rule 3.65 of the Alberta Rules of Court states that the Court may give permission to amend a pleading before or after pleadings have closed.

The “classic rule” from Balm v 3512061 Canada Ltd , 2003 ABCA 98 [ Balm ] at para 43 “is that an amendment should be allowed, no matter how careless or late, unless there is prejudice to the other side, and even that is no obstacle if it is repaired.” [ 7 ] Both parties acknowledge the “classic rule” from Balm and cite the following exceptions established in the case law: (1) the amendment would cause serious prejudice to the opposing party, not compensable in costs; (2) the amendment requested is “hopeless” (an amendment that, if it were in the original pleadings, would have been struck); (3) unless permitted by statute, the amendment seeks to add a new party or a new cause of action after the expiry of a limitation period; and (4) there is an element of bad faith associated with the failure to plead the amendment in the first instance.

See e.g.

Foda v Capital Health Region , 2007 ABCA 207 at para 10 . [ 8 ] The Defendants argue that allowing the proposed amendment alleging fraudulent misrepresentation in the Statement of Claim will cause them serious prejudice, not compensable in costs and that there is bad faith on the part of the Plaintiff in not making this allegation earlier. [ 9 ] As allegations of bad faith require some evidence and the Defendants have not provided any evidence on this point, this ground is easily disposed of: see Murphy Oil Company Ltd v The Predator Corporation Ltd , 2002 ABQB 403 at paras 63-65 . [ 10 ] The Defendants also have the burden of showing they would suffer serious prejudice not compensable in costs if the amendment were allowed: Castledowns Law Office Management Ltd v FastTrack Technologies Inc , 2012 ABCA 219 at para 17 .

While most prejudice will be compensable in costs, prejudice that results from the passage of time may be sufficient to disallow an amendment: Hunter Financial Group Ltd v Maritime Life Assurance Co , 2007 ABQB 263 at paras 37-39 , aff’d 2009 ABCA 199 . [ 11 ] In this case, the Plaintiff applies for this amendment almost seven years after filing the Statement of Claim. Questioning of the Defendants was completed last year. Alleging fraudulent misrepresentation at this stage will likely require reopening questioning and cause further delay in the proceedings.

Moreover, the inherently prejudicial nature of the allegation, discussed more in the next section, suggests that this is an appropriate case in which to exercise my discretion to not allow the amendment. Evidentiary Basis for Alleging Fraudulent Misrepresentation [ 12 ] Whether evidence is required and to what degree depends on the nature of the amendment: Balm at para 25 .

Amendments that simply name causes of action or draw legal conclusions based on facts previously alleged will not require new evidence since the basis already exists in the original pleading: Balm at para 11 ; CT Comm Edmonton Ltd v Shaw Communications Inc , 2007 ABQB 473 [ CT Comm ] at para 23 . The Plaintiff asserts that this is the nature of its proposed amendment to allege fraudulent misrepresentation. [ 13 ] While the evidentiary threshold for substantive amendments is usually low ( Balm at para 29 ), amendments that allege fraud fall into a special category.

Given the seriousness of such allegations, the evidentiary standard for these amendments will be higher: see Mikisew Cree First Nation v Canada , 2002 ABCA 110 at para 61 ; Balm at para 63 . This rationale carries over into the Rule 13.7 of the Alberta Rules of Court (and Rule 115 of the old Rules of Court ) which requires that a pleading that alleges fraudulent misrepresentation

contain sufficient particulars. [14] Defendants must know the case they have to meet and should not be taken by surprise by serious allegations they may nolonger be in a position to defend: see Pepsi-Cola Canada Inc v PM Foods Ltd, (1985) (AB KB), 61 AR 340 (QB) atparas 130-131.

In keeping with this rationale, courts have allowed amendments that allege fraud where the original pleading alreadycontained the substance of the allegation or where evidence of fraud was only found in the course of questioning: see Pike v PembertonSecurities Inc, (AB KB), [1998] 1 WWR 361 (ABQB) at para 50. [15] Similarly, though courts may allow the amending party to provide further particulars to satisfy Rule 13.7, in cases where theremay be limitations issues, the suggestion is that the allegation of fraud will need to be evident in the original pleading: see NPS FarmsLtd v Dupont Canada Inc, 2001 ABQB 779, aff’d 2004 ABCA 80.

Decision [16] The Plaintiff’s argument hinges on its characterization of the proposed amendment as a legal conclusion of what already hasbeen pled in the Statement of Claim. If the proposed amendment alleging fraudulent misrepresentation was merely a legal conclusion, itwould likely accord with the rationale behind the common law and Rule 13.7 that a defendant should not be taken by surprise by suchserious allegations.

Likewise, new evidence would not be necessary as the facts should already be laid out in the original pleading. [17] I find, however, that the existing Statement of Claim does not support a pleading of fraudulent misrepresentation and so Ireject the characterization of the proposed amendment as a legal conclusion of what the Plaintiff has already pled. [18] In this case, an amendment alleging fraudulent misrepresentation would require new evidence and contain sufficientparticulars to satisfy Rule 13.7.

Though the Plaintiff maintains its argument that no new evidence is needed to support its amendmentapplication, by filing the Supplemental Affidavit of “Prior Statements” on May 27, 2013, it presumably seeks to provide furtherparticulars of the allegation to the Court.

As I find no foundation for the allegation in the original pleading, the Plaintiff cannot rely onthis additional evidence for the purpose of satisfying Rule 13.7 this late in the proceedings. [19] The overall result of allowing this amendment would cause serious prejudice to the Defendants, not compensable in costs.Therefore, the present application falls within a well-established exception to the “classic rule” from Balm and I find it appropriate inthis case to exercise my discretion under Rule 3.65 to not allow the amendment.

Conclusion [20] For the above stated reasons, I deny the Plaintiff’s application to amend the Statement of Claim to allege fraudulentmisrepresentation. [21] The parties may speak to costs. Heard on the 2nd day of May, 2013. Dated at the City of Calgary, Alberta this 11th day of October, 2013. B.A. Millar J.C.Q.B.A. Appearances: Mohamed Amery Caron & Partners LLP

for the Plaintiff/Applicant John F Schneider – Self represented for the Defendants/Respondents _______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Mr. Justice B. A. Millar _______________________________________________________ The citation line was corrected to read Horst Tyson Dahlem Professional Corporation v John F Schneider Professional Corporation (Canmore Legal Services), 2013, ABQB 601