Alteen Brothers Limited Plaintiff/ Defendant by counterclaim And: Rolex Canada Ltd. Defendant/ Plaintiff by counterclaim, 2022 NLSC 69

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Alteen Brothers Limited v. Rolex Canada Ltd. , 2022 NLSC 69 Date : April 13, 2022 Docket : 201704G0250 Between: Alteen Brothers Limited Plaintiff/ Defendant by counterclaim And: Rolex Canada Ltd. Defendant/ Plaintiff by counterclaim Before: Justice Peter N. Browne Reasons for Judgment Given Orally Place of Hearing: Corner Brook, Newfoundland and Labrador Date of Hearing: March 31, 2022 Date of Oral Judgment: April 07, 2022

Summary:

The Defendant applied to strike the Plaintiff’s Statement of Claim on the basis it failed to disclose a reasonable cause of action underRule 14.24 and had no reasonable prospect of success. The application was allowed in part. Portions of the Statement of Claim were struck on the basis of Rule 14.24(1)(b), (

c) and (d). Leavewas granted to the Plaintiff under Rule 15.02(1)(

c) to apply to Court to amend the Statement of Claim. As the result was mixed, costswere awarded in the cause on a Column 3 basis. Appearances: T. James Bennett Appearing on behalf of the Plaintiff/ Defendant by Counterclaim Robert R. Bradbury Appearing on behalf of the Defendant/ Plaintiff by Counterclaim Authorities Cited: CASES CONSIDERED: Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19; Al-Haidari v. Memorial University of Newfoundland,2020 NLSC 27; DeBourke v. Eastern Regional Integrated Health Authority, 2019 NLSC 10; Bhasin v. Hrynew, 2014 SCC 71; C.M.Callow Inc. v. Zollinger, 2020 SCC 45; Shanbaum v.

Surface Real Estate Developments Inc., 2022 ONSC 1070; Shelley v. Noel, 2020NLSC 54; Whiten v. Pilot Insurance Co., 2002 SCC 18; Varvis v. Insurance Corp. of British Columbia, (SCC), [1989] 1S.C.R. 1085 (S.C.C.) and McNamara Construction Co., a division of Tarmac Canada Inc. v. Newfoundland Transshipment Ltd. (1999), (NL SC), 172 Nfld. & P.E.I.R. 208, 85 A.C.W.S. (3d) 787 (Nfld. S.C.(T.D.)) STATUTES CONSIDERED: Competition Act, R.S.C., 1985, c. C-34 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch.

D REASONS FOR JUDGMENT Browne, J.: INTRODUCTION [1] The Defendant, Rolex Canada Ltd. (“Rolex”), applied to strike the Plaintiff’s, Alteen Brothers Limited (“Alteens”), Statementof Claim pursuant to Rule 14.24 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch.

D on the grounds that: a. it fails to disclose a reasonable cause of action; b. the pleadings are false, scandalous frivolous or vexatious; and c. the pleadings are embarrassing or an abuse of process. [2] Alteens opposes the application on the grounds that it has a valid claim in law for specific, general and punitive damagesbased on Rolex’s breach of duty of good faith in contractual obligations prior to and following notice to terminate the contract to supplyand sell Rolex watches. [3] The contract in issue was signed between the parties in January 2004.

It was for an indefinite term and could be terminated atwill upon 60 days’ notice by either party. On August 4, 2016, Rolex provided Alteens with written notice of termination stating thecommercial relationship would end on December 31, 2016.

ISSUES [ 4 ] The following are issues the Court must decide: a. Has Rolex established that the Statement of Claim does not comply with the minimum requirements of pleadings pursuant to Rule 14.03? b. Does the Statement of Claim disclose a reasonable cause of action pursuant to Rule 14.24(1)(a)? c. Does the Statement of Claim contain pleadings which are false, scandalous, frivolous or vexatious pursuant to Rule 14.24(1)(b)? d. Does the Statement of Claim contain pleadings which could cause embarrassment or constitute an abuse of process pursuant to Rule 14.24(1)(c)? e.

Does the Statement of Claim contain pleadings which constitute an abuse of process pursuant to Rule 14.24(1)(d)? POSITION OF THE PARTIES Alteens [ 5 ] Alteens claims it has operated a jewelry business in the city of Corner Brook for over 60 years. Over this period it has established a longstanding reputation among customers for jewelry purchases and repair, including the sale of Rolex watches.

It alleges that prior to the termination of the contract by Rolex it was the largest seller of Rolex watches in Atlantic Canada making up 70 percent of its sales. [ 6 ] In 2011, the relationship took a turn for the worst when a Rolex dealer in Halifax, Nova Scotia complained to Rolex that Alteens was undercutting him in price. This led to a subsequent reprimand from Rolex to Alteens regarding the sale of their watches for less than the manufacturer’s suggested retail price. [ 7 ] What followed was a series of demands by Rolex regarding the adequacy of their store front premises.

These demands included carrying out renovations which later changed to a demand that they relocate. In July 2016, representatives from Rolex conducted a site review and concluded the city of Corner Brook was no longer a suitable location for the sale of their merchandise. Pursuant to the terms of the 2004 agreement, Rolex issued the 60 day notice of termination on August 4, 2016. [ 8 ] Alteens argues their cause of action is not based on the appropriateness of the notice but the pattern of behaviour by Rolex leading up to and following the issuance notice which is in issue.

They allege this behaviour raises legal issues of: a. the duty of good faith between parties to commercial contracts; and b.

section 76 of the Competition Act , R.S.C., 1985, c. C-34 regarding the validity of price maintenance agreements between suppliers and vendors. Rolex [ 9 ] Rolex asserts that the Statement of Claim fails to disclose a factual or legal basis for a valid claim of breach of contract and any associated factual or legal basis for damages. They rely on clause 7.01 of the 2004 contract as set out in paragraph 6. xvii. of the Statement of Claim in support of their legal position. THE LAW (

a) Rule 14.03 - facts, not evidence to be pleaded [ 10 ] Pleadings are not to contain evidence. Instead, they are to contain a statement in

summary form of the material facts upon which the claim or defence is based. They need not be lengthy as brevity and specificity are preferred. [ 11 ] Rule 14.03 is further qualified by Rule 14.11(1)(

a) which requires pleadings to contain the necessary particulars of the claim alleged such as misrepresentation or breach of trust and Rule 14.11(2) which requires that “where necessary” to give particulars of any expenses or damages. Should the particulars exceed three pages then they are to be set out in a separate document and served with the pleading. (

b) Rule 14.24(1)(a) - failure to disclose a reasonable cause of action [ 12 ] Both parties referred this Court to the Supreme Court of Canada decision in Atlantic Lottery Corp. Inc. v. Babstock , 2020 SCC 19 as authority for the correct test to be applied under Rule 14.24(1). At para. 14, Brown, J. writing for the majority summarized it as follows: [14] ALC's application to strike relies on r. 14.24(1) of the Rules of the Supreme Court , which allows the court to strike any portion of a statement of claim that discloses no reasonable cause of action.

The parties agree that determining whether any reasonable cause of action is disclosed in the plaintiffs' statement of claim will also satisfy the first requirement of the plaintiffs' application for certification. The test to be applied under both applications, therefore, is whether it is plain and obvious, assuming the facts pleaded to be true, that each of the plaintiffs' pleaded claims disclose no reasonable cause of action. Simply stated, if a claim has no reasonable prospect of success it should not be allowed to proceed to trial ( R. v.

Imperial Tobacco Canada Ltd. , 2011 SCC 42 , [2011] 3 S.C.R. 45 , at para. 17 ).

[Emphasis added] (

c) Rule 14.24(1)(b) - the pleadings are false, scandalous, frivolous or vexatious [ 13 ] In the decision Al-Haidari v. Memorial University of Newfoundland , 2020 NLSC 27 at paras. 25 - 26 , my colleague Adams, J. considered the circumstances in which pleadings may fall within this subsection of the rule: [25] In Steiner v. R. , 1996 CarswellNat 1742 , [1996] F.C.J. No. 1356 at paragraph 16 , the Federal Court of Canada succinctly defined what amounts to scandalous, frivolous and vexatious pleadings: 16.

A scandalous pleading includes one which improperly casts a derogatory light on someone, with respect to their moral character. A claim is a frivolous one where it is of little weight or importance or for which there is no rational argument based upon the evidence or law in support of the claim. A vexatious proceeding is one that is begun maliciously or without a probable cause, or one which will not lead to any practical result. [26] The meaning of frivolous and vexatious under Rule 14.24(1)(

b) was also considered in Hynes v. Pro Dive Marine Services Ltd ., 2016 NLCA 17 at paragraph 13 : 13. The meaning of frivolous or vexatious under rule 14.24(1)(

b) is discussed in Walsh v. Johnson , 2010 NLCA 6 , 293 Nfld. & P.E.I.R. 101 . A frivolous action is one that has "no substance", or "is obviously unsustainable or without arguable merit" (paragraphs 19 and 21). A vexatious action is [20] ... one that is brought for an improper purpose such as to harass, annoy or embarrass a party and not for the legitimate purpose of seeking the vindication of legal rights. A frivolous action may also be vexatious if the respondent is required "to engage counsel and respond to something that cannot succeed ... because it would be an abuse of the court's process" (paragraph 21). (

d) Rule 14.24(1)(c) – the pleadings are embarrassing or prejudicial [ 14 ] In DeBourke v. Eastern Regional Integrated Health Authority , 2019 NLSC 10 , at para. 14 , Chief Justice Whalen outlined the context in which a court should consider applying this subsection of the rule: [14] In the present context, the word embarrassing is used to capture a broad range of material defects in a pleading or proposed amendment. For instance, in Duryea v. Kaufman (1910), 21 O.L.R. 161 at 165, Justice Riddell, relying on Stratford Gas Co. v. Gordon (1892), 14 P.R. 407 ; Heugh v. Chamberlain , [1877] 25 W.R. 742; and Knowles v.

Roberts (1888), 38 Ch. D. 263 , noted that a pleading will be embarrassing to the opposing party where it alleges facts that are wholly immaterial to the outcome of the case, or where the proposed amendments "are so irrelevant that to allow them to stand would involve useless expense and would prejudice the trial of the action by involving the parties in a dispute that is tangential to the main claim". As would pleadings that "fail to state a real issue between the parties in an intelligible way" ( Dempsey v. Envision Credit Union, 2006 BCSC 750 , at para. 86 ; see also Lundrigan v.

Short , 2000 CarswellNfld 242 (Nfld. S.C.(T.D.)), per Russell, J., at para. 4). . . . (

e) Rule 14.24(1)(d) - the pleadings are an abuse of process [ 15 ] In the Al-Haidari decision at para. 29 , Adams, J. also addressed the issue of when pleadings fall within the context of “an abuse of process”: [29] Pleadings may also be struck under Rule 14.24(1)(

d) if they amount to an abuse of process. Additionally, an attempt to put forward a cause of action where judicial review is the appropriate recourse is an abuse of process: Yen v. Alberta , 2010 ABQB 380 . In Hynes , supra , the Court held that pleading legal conclusions (as opposed to points of law such as statutory provisions or legal principles, as for example, contributory negligence) amounts to argument to which the Defendant could only reply by argument. This is improper pleading and should be struck. The same may be said of pleading

interpretation, inferences, conclusions and innuendo (see paragraph 24 of Hynes ), as it would fail to comply with proper principles of pleading so as to permit the defendant to respond. ANALYSIS [ 16 ] For the reasons that follow, I allow the application in part. Liability - breach of contract [ 17 ] Rolex argues the Statement of Claim fails to set out the factual or legal basis for a valid claim of breach of contract. It points to paragraph 6 which is essentially a facsimile of the provisions, rights and obligations under the 2004 contract. I accept their argument.

Rule 14.03 makes it clear pleadings should contain averments and not contain evidence. Accordingly, this paragraph will be struck from the Statement of Claim as they fail to “state the real issue in an intelligible way” pursuant to Rule 14.24(1)(c).

[ 18 ] Further, paragraph 28 of the Statement of Claim alleging Rolex “engaged in bad faith and harassing conduct that amounts to a breach of contract” is a bald assertion that lacks the factual basis necessary to establish a cause of action. I do not accept this argument entirely.

When paragraph 28 is read in conjunction with paragraphs 7 – 27, it describes material facts which, if proven, could establish a pattern of behaviour by Rolex to punish Alteens for selling the company’s watches at prices below the suggested manufacturer price in contravention of its informal pricing policy. [ 19 ] While describing the conduct in paragraph 28 in legal terms as amounting to “a breach of contract” it appears that in real terms Alteens was attempting to plead the principle governing the duty of honesty and good faith in contractual obligations.

However, the pleadings are tenuous at best and need to better set out the real issue in an intelligible fashion. Nevertheless, I do find they describe a claim that has a reasonable prospect of success. [ 20 ] The duty of good faith requires that the parties perform their contractual obligations in an honest, non-misleading and non- deceptive way ( see Bhasin v. Hrynew , 2014 SCC 71 at para. 73 and C.M. Callow Inc. v. Zollinger , 2020 SCC 45 at paras. 38 - 40 ). A pleading that Rolex failed to comply with this duty is a conclusion of law.

Such a conclusion cannot be pleaded unless Alteens has asserted material facts that could support it. [ 21 ] The recent decision of Gomery, J. in Shanbaum v. Surface Real Estate Developments Inc. , 2022 ONSC 1070 at para. 17 supports this notion: 17 The importance of notice of a plaintiff's case, through pleadings, was mentioned in Bhasin . The defendant argued that the plaintiff's statement of claim failed to plead that it had breached a duty of good faith.

The Supreme Court rejected this argument, stating at para. 19 that the "allegations in the statement of claim clearly put the questions of improper purpose and dishonesty in issue. These facts are sufficient to put Can-Am's good faith in issue.

The question of whether this conduct amounted to a breach of the duty of good faith is a legal conclusion that did not need to be pleaded separately." [ 22 ] Paragraphs 7 - 27 of the Statement of Claim refer to intentional acts by Rolex which show a state of mind on its part that could, if proven, allow a court to conclude that it breached its duty of good faith. [ 23 ] Paragraphs 9 - 14 set out a factual matrix which describes an informal pricing policy Rolex required all of its sellers to adhere to and a specific instance where this policy was not followed by Alteens in 2011. [ 24 ] Paragraphs 15 - 27 describe actions taken by Rolex following its discovery that Alteens was not selling its watches for the manufacturer’s suggested retail price.

It includes a reprimand from the president of Rolex followed by complaints from Rolex to Alteens that their store premises were inadequate and remedial action was necessary. The remedial action initially required was a $250,000 renovation but this requirement was later changed to a demand by Rolex that Alteens move its location to a shopping mall. No specific dates or material facts regarding these incidents have been pleaded in an intelligible way so as to allow Rolex to respond. [ 25 ] In the decision Shelley v.

Noel , 2020 NLSC 54 , my colleague Boone, J. held that under a 14.24 application to strike, the Court must consider, as a primary issue, whether the pleadings set out the necessary elements of each cause of action.

If they do not, then could amendments to the Statement of Claim cure the deficiency? [ 26 ] In applying these principles, no evidence is admissible as the application proceeds on the assumption that the plaintiff will prove the pleaded facts if the matter proceeds to trial (see paras. 5 - 6 of Shelley ). [ 27 ] Because the material facts as pleaded in paragraphs 7 - 27 disclose the basis for a reasonable prospect of success for breach of duty of good faith in contractual obligations, I grant Alteens leave under Rule 15.02(1)(

c) to apply to this Court to make the necessary amendments to bring its pleadings in line with the factual and legal basis for this cause of action. Competition Act - section 76(5) [ 28 ] At paragraph 28. i. of the Statement of Claim, Alteens pleads Rolex violated the Competition Act by attempting to coerce them into selling its watches at a fixed price. [ 29 ] This provision is part of a federally regulated statutory regime governing price maintenance.

Section 76 sets forth an application process to a specialized tribunal created under the legislation to investigate conduct which is likely to have an adverse effect on competition in the market. [ 30 ] This is not a matter for which this Court has jurisdiction. Accordingly, this pleading will be struck under 14.24(1)(

d) as an abuse of process. Punitive Damages [ 31 ] At paragraphs 28. and 29. iii. of the Statement of Claim, Alteens seeks the sum of $10 million in punitive damages based on the allegation of bad faith.

Rolex argues this claim lacks any factual or legal basis. [ 32 ] In Bhashin , at para. 65, Cromwell, J. noted the distinction between the organizing principle of good faith and doctrine of utmost good faith which is based on the fiduciary principle of loyalty: [65] The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner.

While "appropriate regard" for the other party's interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary. Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first.

[33] In the context of a breach of contract claim, punitive damages are generally available in circumstances where the underlyingnature of the contract attracts fiduciary duties such as contracts of insurance or employment (see Whiten v. Pilot Insurance Co., 2002SCC 18 and Varvis v. Insurance Corp. of British Columbia, (SCC), [1989] 1 S.C.R. 1085 (S.C.C.) at pp. 1107-8: In my view, while it may be very unusual to do so, punitive damages may be awarded in cases of breach of contract. It would seem tome, however, that it will be rare to find a contractual breach which would be appropriate for such an award.

In tort cases, claims where aplaintiff asserts injury and damage caused by the defendant, the situation is different. The defendant in such a case is under a legal dutyto use care not to injure his neighbour, and the neighbour has in law a right not to be so injured and an additional right to compensationwhere injury occurs. The injured party is entitled to be made whole. The compensation he is entitled to receive depends upon the natureand extent of his injuries and not upon any private arrangement made with the tortfeasor.

In an action based on a breach of contract, theonly link between the parties for the purpose of defining their rights and obligations is the contract. Where the defendant has breachedthe contract, the remedies open to the plaintiff must arise from that contractual relationship, that "private law", which the parties agreedto accept. The injured plaintiff then is not entitled to be made whole; he is entitled to have that which the contract provided for him orcompensation for its loss. This distinction will not completely eliminate the award of punitive damages but it will make it very rare incontract cases.

Moreover, punitive damages may only be awarded in respect of conduct which is of such nature as to be deserving ofpunishment because of its harsh, vindictive, reprehensible and malicious nature.

I do not suggest that I have exhausted the adjectiveswhich could describe the conduct capable of characterizing a punitive award, but in any case where such an award is made the conductmust be extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment. [34] Other examples of instances which may attract punitive damages include actions in which the plaintiff claims tortious conductand breach of contract (see McNamara Construction Co., a division of Tarmac Canada Inc. v.

Newfoundland Transshipment Ltd. (1999), (NL SC), 172 Nfld. & P.E.I.R. 208, 85 A.C.W.S. (3d) 787 (Nfld. S.C.(T.D.)) at para. 58). [35] The Statement of Claim does not contain averments that would provide a factual and legal basis to establish a claim for punitivedamages.

The current iteration of paragraph 6 referencing the 2004 contract does not contain language which would directly or indirectlysupport the existence of a fiduciary duty between the parties, nor does the Statement of Claim as a whole contain the factual and legalbasis to support a cause of action for tortious conduct. [36] Accordingly, I find the current pleadings fail to disclose the basis for a claim for punitive damages and would fall within Rule14.24(1)(

b) as being frivolous and vexatious. As noted by Boone, J. in Shelley at para. 27, this is the point where I must consider if theimpugned pleading must be struck or whether the deficiency is curable by an amendment. [37] Given that I have granted Alteens leave to apply to make the necessary amendments to bring the cause of action in line with aclaim for breach of duty of good faith in contractual obligations, I will also allow for any necessary amendments regarding its claim forpunitive damages bearing in mind the limitations to support such a claim as noted above.

DISPOSITION [38] The application by Rolex is allowed in part: a. Paragraph 6 of the Statement of Claim is struck. b. Leave is granted to Alteens to apply to Court under Rule 15.02(1)(

c) to amend the Statement of Claim in order to set forth theproper factual and legal basis for a claim of breach of duty of good faith in contractual obligations. Alteens shall have 60 days from thedate of the Order to apply to amend its Statement of Claim. c. The references to the Competition Act are struck. d. The claim for punitive damages will follow the necessary amendments made by Alteens to support its cause of action. [39] Given the result is mixed, costs will be in the cause on a Column 3 basis. _____________________________ Peter N. Browne Justice