ASM Capital Corp. v. Date:, 1999 BCCA 353

Citation: ASM Capital Corp. v. Date: 19990603 Mercer International Inc. Docket: CA025153 1999 BCCA 353 Registry: Vancouver COURT OF APPEAL FOR BRITISH COLUMBIA BETWEEN: ASM CAPITAL CORPORATION, PAULA K. MANHAS, Executrix and Trustee Under the Last Will and Testament of ASSA S. MANHAS, Deceased and H. RICK GILL PLAINTIFFS (APPELLANTS) AND: MERCER INTERNATIONAL INC. DEFENDANT (RESPONDENT) Before: The Honourable Mr. Justice Cumming The Honourable Mr. Justice Hollinrake The Honourable Mr. Justice Goldie D. H. Prince Counsel for the Appellants

M.R.V. Storrow, Q.C. and P. A. Juk Counsel for the Respondent Place and Date of Hearing Vancouver, British Columbia May 21, 1999 Place and Date of Judgment Vancouver, British Columbia June 3, 1999 Written Reasons by: The Honourable Mr. Justice Cumming Concurred in by: The Honourable Mr. Justice Hollinrake The Honourable Mr. Justice Goldie Reasons for Judgment of the Honourable Mr. Justice Cumming : 1 .

This is an appeal of the order of Madam Justice Morrison, pronounced in chambers September 18, 1998, allowing the defendant's appeal of an order of Master Bolton relating to certain amendments sought by the defendant to its amended statement of defence and counterclaim. Leave to appeal was granted by the Chief Justice of this Court on February 18, 1999. 2 . The appeal raises issues relating to the

interpretation and application of ss.4(1) and (4) of the Limitation Act , R.S.B.C. 1996, c.266 .

Those sections are as follows: Counterclaim or other claim or proceeding 4 (1)If an action to which this or any other Act applies has been commenced, the lapse of time limited for bringing an action is no bar to (a)proceedings by counterclaim, including the adding of a new party as a defendant by counterclaim, (b)third party proceedings, (c)claims by way of set off, or (d)adding or substituting a new party as plaintiff or defendant, under any applicable law, with respect to any claims relating to or connected with the subject matter of the original action. . . . (4)In any action the court may allow the amendment of a pleading, on terms as to costs or otherwise that the court considers just, even if between the issue of the writ and the application for amendment a fresh cause of action disclosed by the amendment would have become barred by the lapse of time. 3 .

On October 5, 1995 the plaintiffs sued the defendant to enforce the terms of a consulting and stock option agreement (the

"agreement") between themselves and the defendant. Pursuant to the agreement, the plaintiffs allege that the defendant granted to each of Rick Gill and the late Assa S. Manhas options to purchase 75,000 shares in the defendant at an exercise price of (U.S.) $2.50 per share. 4 . Mr. Manhas and Mr. Gill sought to exercise the options in the late summer of 1995 but the defendant refused to issue any shares to them. As a result of the defendant's refusal, this action was commenced. 5 . Mr. Manhas died on October 7, 1995. Mr.

Manhas' wife, Paula Manhas, who was the sole executrix, trustee and beneficiary of his estate, was substituted as plaintiff. 6 . ASM is a private British Columbia corporation. At all material times ASM's shares were held by a trust for the benefit of Mr. Manhas' family. Mr. Manhas and Mr. Gill were ASM's directors and its principal officers and employees. Through ASM, Mr. Manhas and Mr. Gill provided financial and consulting advice to the defendant relating primarily to public and private equity financing. 7 .

The defendant is a Massachusetts trust organized pursuant to the laws of the State of Washington, U.S.A. with a corporate head office in Switzerland and an address for service in Seattle, Washington. In or about January 1992, the defendant changed its name from Asiamerica Equities Ltd. to Mercer International Inc. 8 . As noted above, the plaintiffs commenced their action on October 5, 1995. The defendant filed a statement of defence on January 19, 1996. On March 11, 1996 the defendant filed an amended statement of defence and counterclaim.

Particulars in respect of the counterclaim were delivered on July 24, 1997. 9 . In its amended statement of defence and counterclaim, the defendant sought damages against ASM and the estate of Assa Manhas as a result of alleged losses it incurred on certain investments which Mr. Manhas and ASM were alleged to have recommended to the defendant and for which Mr. Manhas had allegedly promised to guarantee and indemnify the defendant against any "downside risk". The defendant's alleged losses were stated to be $756,479.00. 10 .

In March 1998, the defendant sought to further amend its amended statement of defence and counterclaim. The amendments sought by the defendant were to: (a)facilitate the accurate cross-referencing of the pleadings in response to the plaintiffs amended statement of claim; (b)incorporate the particulars which the defendant had previously delivered to the plaintiffs; and (c)add claims of breach of trust and breach of fiduciary duty against the estate of Mr. Manhas and ASM. 11 .

The defendant's application to amend its amended statement of defence and counterclaim came on for hearing on May 14, 1998 before Master Bolton. The plaintiffs opposed the amendments to the extent they sought to add claims of breach of trust and breach of fiduciary duty (the "amendments" in para. (

c) above). 12 . The learned master dismissed the defendant's application and the defendant appealed his order to a judge of the Supreme Court. 13 . On September 3, 1998 the defendant's appeal came on for hearing before Madam Justice Morrison. On September 18, 1998 the learned chambers judge released written reasons for judgment allowing the appeal and granting the defendant the amendments it sought. ISSUES

14 .

As set out in the appellants' factum, the issues relevant to this appeal are: (a)Did the learned chambers judge err in granting the amend​ments pursuant to s.4(1) of the Limitation Act , without regard to s.4(4) of the Act? (b)Did the learned chambers judge err in finding that the subject matter of the amendments was related to or connected with the subject matter of the original action as required by s.4(1) of the Limitation Act ? (c)If the requirements of ss.4(1) and (4) of the Limitation Act must each be met in order for a defendant to amend a counterclaim to advance a fresh cause of action which is statute-barred as of the date the amendments are sought, this appeal raises the following additional issues in respect of which the learned chambers judge erred by failing to consider: (i)does s.4(4) of the Limitation Act permit a defendant to set up by amendment a fresh cause of action that was statute-barred as of the date the original action was commenced and, if so, in what circumstances? (ii)does s.4(4) of the Limitation Act permit a defendant to set up by amendment a fresh cause of action that was not statute-barred as of the date when the original action was commenced, but became statute-barred before the amendment is sought and, if so, in what circumstances?

DISCUSSION (a)Did the learned chambers judge err in granting the amendments pursuant to s.4(1) of the Limitation Act , without regard to s.4(4) of the Act? 15 . The proposed amendments allege causes of action which were statute-barred at the time they were sought and which were, in part, statute-barred as of the date the plaintiffs commenced their action. 16 . Counsel for the respondent submits that the result of this appeal is dictated by the decision of the five judge panel of this Court in Lui v.

West Granville Manor Ltd. (1987), 1987 CanLII 164 (BC CA) , 11 B.C.L.R. (2d) 273 (" Lui (No. 2) ") which, he says, determined that no limitation defence can ever apply to a cause of action that may be raised by way of counterclaim so long as that cause of action is related to or connected with the original action. However, Lui (No. 2) was concerned with the institution of any of the proceedings described in paragraphs (

a) to (

d) of s.4(1) and not, as we are in the case at bar, with their amendment. 17 . Section 4(1) of the Limitation Act permits a defendant to bring a counterclaim against a plaintiff even if the cause of action alleged is statute-barred, provided that the subject matter of the counterclaim is related to or connected with the subject matter of the plaintiff's action. 18 . On the other hand, s.4(1) of the Limitation Act does not confer jurisdiction on the court to grant leave to a defendant to amend a counterclaim to allege a cause of action that is statute-barred. Section 4(1) and, in particular, s.4(1)(

a) of the Act is limited to the commencement of proceedings by counterclaim ─ not their amendment . This is clear from the plain meaning of its words. To hold otherwise renders s.4(4) tautologous. Interpreting s.4(1) in the manner that the learned chambers judge did also creates a procedural unfairness between defendants and plaintiffs. The learned master recognized this in his reasons for judgment when he said: But this is not a case of a new counterclaim, this is a case of a proposed amendment.

The issue, then, is whether Section 4(1) still governs, which would essentially mean that the Limitation Act is, for all purposes, for all times, irrelevant to any counterclaim and all amendments to it linked to the original action that a defendant may wish to pursue, or whether the somewhat more restrictive provisions of subsection (4) apply.

In my view, questions of simple fairness dictate that the latter is the answer. Mr. Justice Lambert has given very good practical reasons why section 4(1) should be given the meaning that he ascribes to it, but in my view it would not be sensible, or practical, or fair, to allow that same freedom from limitation worries to govern once the interest in the litigation of the defendant and counterclaimant had been established. If it were otherwise, the party who has a counterclaim, unlike any other parties to that particular litigation, would forever be free of any concerns about limitations.

I'll put it again in terms of fairness. It would not be fair to allow that freedom and luxury to one party and not the others. All other parties, other than the party with a counterclaim, who might seek to make amendments, would be subject to the requirements of subsection (4), and it simply is not balanced to give an additional freedom, an additional right, to the party with the counterclaim as compared to all the other parties to the litigation. 19 .

Section 4(4) of the Limitation Act confers a discretionary jurisdiction on the court to permit a defendant to amend a counterclaim to allege a cause of action which has become statute-barred since the commencement of the plaintiff's action ─ but not before. This

interpretation of s.4(4) is supported by the language of the section; by reference to the 1974 proposals of the B.C. Law Reform Commission in its Report on the Limitation Act ; and this Court's decision in Daco Developments Ltd. et al v. Norman Lewis Co. Ltd. (1982), 1982 CanLII 421 (BC CA) , 33 B.C.L.R. 273 (C.A.) (also see Hogan v. McKay (1984), 42 C.P.C. 264 (B.C.S.C.) and Lewis v. McGhan Medical Corp. (1995), 37 C.P.C. (3d) 22 (B.C.S.C.) ). 20 .

The discretion to be exercised by a chambers judge in deciding whether to grant leave to a defendant to amend a counterclaim to plead a cause of action that has become statute-barred since the commencement of the original action requires the chambers judge to consider: (a)the relative prejudice to the parties; (b)the length of delay in seeking the amendment, and (c)the defendant's explanation for delay. 21 . Strictly speaking, the law in this Province is that there is a presumption of prejudice in favour of the party opposing the amendments: Med Finance Co. S.A. v.

Bank of Montreal (1993), 1993 CanLII 1428 (BC CA) , 79 B.C.L.R. (2d) 222 (C.A.) . Certain obiter dictum in recent decisions of this Court have questioned the correctness of this aspect of the Court's judgment in Med Finance . See: Teal Cedar Products

(1977) Ltd. v. Dale Intermediaries ltd. (1996), 1996 CanLII 3033 (BC CA) , 19 B.C.L.R. (3d) 282 (C.A.) and Tri-Line Expressways v. Ansari (1997), 1997 CanLII 4075 (BC CA) , 30 B.C.L.R. (3d) 222 (C.A.) . However, it is not necessary nor is it open to us on this appeal to resolve this question. 22 . The learned master found that the sole juridical basis to grant the amendments sought was found in s.4(4) of the Limitation Act .

In this regard, he said: I conclude that of the two sections it is indeed subsection (4) that applies in the case at bar where a defendant who has already filed a counterclaim seeks leave to amend its counterclaim. 23 . In the case at bar, the learned chambers judge granted the amendments on the basis of s.4(1) of the Limitation Act .

In this regard she said: [12] Master Bolton found that s. 4(1) of the Limitation Act was inapplicable in this situation, where a party sought to amend its counterclaim, and he further found that prejudice was to be presumed in applying s. 4(4) of the Act. [13] In my view, leave to amend should have been allowed, having in mind s. 4(1) of the Limitation Act and more particularly s. 4(1)(a). There is nothing in the legislation to suggest that this

section would apply only to a counterclaim and not to an amendment of a counterclaim. 24 . In my view, s.4(1) does not confer jurisdiction on the chambers judge to make the order she did. With respect, the learned chambers judge erred in doing so in law.

25 .

In my opinion, the appropriate test to be applied to a defendant's application to amend a counterclaim to allege a cause of action that would otherwise be statute-barred at the time the amendment is sought is: (a)Do the proposed amendments allege a cause of action that was not statute-barred as of the date the original action was commenced? (b)If the proposed amendments do not allege a cause of action that was statute-barred as of the date the plaintiffs' action was commenced, should a defendant be granted leave to amend its counterclaim having regard to the relative prejudice to the parties and the defendant's explanation for its delay in seeking to advance the new cause of action? (b)Did the learned chambers judge err in finding that the subject matter of the amendments were related or connected to the subject matter of the original action as required by section 4(1) of the Limitation Act? 26 .

Having reached the conclusion that, in the case at bar, it is s.4(4) and not s.4(1) that governs, it is not essential to consider this issue further. However, out of deference to the arguments of counsel, some observations may be appropriate. 27 . On this question, the learned chambers judge simply said: [15] I agree with counsel for the defendant that the proposed amendments are claims that are "related to or connected with the subject matter of the original action". I find there is no limitation bar to the proposed amendments sought. 28 . With deference, I disagree.

In my view, the amendments are not related to or connected with the subject matter of the plaintiffs' action. The plaintiffs' claim is for breach of contract in respect of the option agreement made between the parties in the fall of 1990. The amendments seek damages for alleged breaches of trust against two of the plaintiffs in respect of securities purchased and sold for a loss by a number of corporations in which the defendant held a direct or indirect beneficial interest between the fall of 1987 and immediately prior to the date the alleged agreement was made. 29 .

Other than the identity of the parties, the action and the counterclaim are entirely separate and distinct from one another; their causes of action are distinct; their subject matters are distinct; the nature of the alleged damages is distinct; and the periods of time in which the alleged causes of action arose are distinct. Accepting the defendant's allegations as true, the defendant's entire cause of action had matured and crystallized prior to the date on which the plaintiffs allege the agreement was entered into.

The defendant denies the existence and the efficacy of the agreement; it denies its authenticity, the signature of Mr. Smith; and the authenticity of its corporate seal. The subject matter of the proposed amendments as well as the subject matter of the original counterclaim are not related to or predicated on the agreement the plaintiffs allege. 30 . To prove their case, the plaintiffs will not have to lead any evidence in relation to any of the allegations contained in the counterclaim other than the identity of the parties.

Similarly, the defendant will not have to refer to any matters alleged in the statement of claim to prove any of the allegations contained in its counterclaim, amended or otherwise, other than the identity of the parties. The identity of the parties is not a relevant enquiry for determining whether a counterclaim is related or connected to the action because s.4(1) limits the relation or connection between the two proceedings to their subject-matter. 31 .

In sum, the learned chambers judge erred in finding that the subject matter of the proposed amendments was related to, or connected with, the subject matter of the original action. (c) (i)Does s.4(4) of the Limitation Act permit a defendant to set up by amendment a fresh cause of action that was statute-barred as of the date the original action was commenced and, if so, in what circumstances?

32 . As previously noted, s.4(4) of the Limitation Act confers a discretionary jurisdiction on the court to permit a defendant to amend a counterclaim to allege a cause of action which has become statute-barred since the commencement of the plaintiff's action ─ but not before . 33 . From a review of the defendant's particulars of the transactions which form the basis of its counterclaim, it is apparent that a significant number of the alleged losses were realized more than six years prior to the commencement of the plaintiffs' action.

Accordingly, there was no jurisdiction for the learned chambers judge to grant leave to the defendant to amend its counterclaim in respect of these alleged losses. (c) (ii)Does s.4(4) of the Limitation Act permit a defendant to set up by amendment a fresh cause of action that was not statute- barred as of the date when the original action was commenced but became statute-barred before the amendment is sought and, if so, in what circumstances? 34 . The defendant did not put forward any evidence to explain its delay in seeking the amendments.

The cause of action that the defendant seeks to assert by the amendments was known to it before the agreement was entered into and years before the plaintiffs asserted their claim consequent upon the defendant's refusal to issue the subject securities in the summer of 1995. The defendant did not explain its delay in commencing its action, let alone the delay in seeking the amendments. 35 . The learned master expressly found that the relative prejudice between the parties was, at best, equal.

Counsel for the plaintiff submits that, in fact, the prejudice to the plaintiffs was much greater than the prejudice to the defendant.

He points out that the prejudice to the plaintiffs (at the time the applications were heard in the court below) includes: (a)the loss of a limitation defence; (b)the loss of a trial date, unless the counterclaim was severed; (c)significantly increased costs because the plaintiffs would be required to: (i)conduct further discovery abroad; (ii)interview a number of additional witnesses whose memory of the alleged events will no doubt be taxed, given the effluxion of time; (iii)respond to broad-ranging demands for document production; (iv)face a longer and hence more expensive trial. 36 .

In my respectful view, the learned chambers judge erred in failing to consider the relative prejudice which clearly favoured the plaintiffs' position. 37 . For these reasons I would allow the appeal, set aside the order of the chambers judge and restore that of the learned master, and direct that the defendant further amend its statement of defence and counterclaim by deleting the amendments in paragraphs 7 through 15.

"THE HONOURABLE MR. JUSTICE CUMMING" I AGREE: "THE HONOURABLE MR. JUSTICE HOLLINRAKE" I AGREE: "THE HONOURABLE MR. JUSTICE GOLDIE"