[2002] 2 F.C. 458
T-666-99
2001 FCT 1254
Anthony J. Temple (Plaintiff)
v.
Her Majesty the Queen in right of Canada as represented by the Minister of National Revenue (Defendant)
Indexed as: Temple v. M.N.R. (T.D.)
Trial Division, Hargrave P.—Vancouver, August 23, 2000; Winnipeg, November 15, 2001.
Corporations — Rule in Foss v. Harbottle: action for wrongs done to company must be brought by corporation itself — Exception: when personal rights of shareholder infringed — Corporate veil disregarded when interests of justice so require — Where shareholder seeking to draw aside corporate veil, standard higher than when justice sought by third party — Statement of claim alleging misfeasance in collection of assessments from now defunct companies, owned, controlled by plaintiff — Accepting statement of claim as proven, wrong to companies resulting in indirect wrong to plaintiff as shareholder, but also in direct wrong to him personally as lost employment, personal funds, wrongly assessed personally, suffered stress — As plaintiff not having reasonable cause of action as shareholder, only that part of statement of claim should be struck — As personal action having possibility of success, allowed to stand.
Practice — Pleadings — Motion to strike — Statement of claim as disclosing no reasonable cause of action — Plaintiff suing Crown for misfeasance in tax collection from now defunct companies owned, controlled by him — Crown pleaded to whole of statement of claim — Relying on rule in Foss v. Harbottle i.e. duties owed to corporation can be enforced only by company itself — Although motion to strike usually brought before pleading over, appropriate to deal with motion to strike for want of cause of action at any time — While corporate entity distinct from shareholder, directors, courts have lifted corporate veil where necessary to do justice — Plaintiff alleging direct personal wrong as lost employment, savings, suffered stress — Only portion of claim is as shareholder suing for diminution in value of corporate shares — Where shareholder seeking to pierce corporate veil, held to higher standard than when issue doing justice to third party — S.C.C. recognizing shareholder may have action for wrong done to him as individual in Hercules Managements Ltd. v. Ernst & Young — Personal claims could succeed on reading statement of claim with generous eye.
Practice — Affidavits — Federal Court Rules, 1998, r. 221(2) prohibiting affidavit evidence on motion to strike for want of cause of action — Defendant relying on affidavit with exhibits attached thereto, suggesting allegations in statement of claim false — Facts outlined as evidence have no place on motion to strike for want of cause of action — Affidavit evidence permissible in support of motion to strike for want of jurisdiction, but not when shortcoming want of cause of action.
Practice — Pleadings — Amendments — Plaintiff suing Crown for misfeasance in collection of assessments from now defunct companies, owned, controlled by him — Seeking to amend statement of claim to allege malicious or unreasonable conduct — Amendment should be allowed at any stage provided no prejudice not compensable by costs — Amendment arising as result of discovery of documents, reassessments, comments by Tax Court — Motion to insert allegation of malice in existing subsections of statement of claim to which defendant already pleaded allowed.
Practice — Pleadings — Particulars — Defendant seeking particulars of allegations of malice, unlawfulness plaintiff seeking to add to existing paragraphs of statement of claim — Amendments arising as result of discovery of documents, reassessments, comments by Tax Court — As already pleading to paragraphs, defendant not hampered by amendments — Motion for particulars denied.
This was a motion to strike out the statement of claim as disclosing no reasonable cause of action under Federal Court Rules, 1998, paragraph 221(1)(a) and portions of the statement of claim as bare assertions, or as demonstrably false. The plaintiff moved to amend the statement of claim to add an allegation that the alleged misfeasance was done maliciously or without lawful and reasonable basis.
The action involved a claim against the Minister of National Revenue for misfeasance in the collection of assessments from now defunct companies, DPD Management Ltd. and A.J.F. Temple Co. Inc., which were owned and controlled by the plaintiff. The assessments deemed the companies to be employers who should have made source deductions for income tax and for unemployment insurance premiums. Also involved was a third now defunct company, Temple Construction Ltd., which is said to have been unable to carry on as a result of various collection proceedings by the Minister. The plaintiff’s claim was as a director of the companies who was liable for the assessments, for economic loss as the owner of the three companies which were unable to carry on business as a result of the assessments, and for personal stress as a result. The Minister relied on the rule in Foss v. Harbottle that duties owed to a company may be enforced only through an action by the company itself.
Held, the motion to strike out the statement of claim should be allowed with respect to the plaintiff’s claim as a shareholder, but not with respect to his personal action; the motion to amend with respect to insertion of malice into existing paragraphs of the statement of claim should be allowed.
Subsection 221(2) of the Rules prohibits affidavit evidence in support of a motion to strike out for want of a cause of action. The Minister relied upon an affidavit containing two exhibits--one was an unreported judgment of the B.C. Court of Appeal, determining that DPD Management Ltd. was entitled to enforce contractual debts against Itoman so that DPD Management might pay various debts, including the so-called tax liability to Revenue Canada; the other was the decision of the Tax Court of Canada in Temple v. Canada, holding that the assessment by Revenue Canada, which formed part of the basis of the present proceedings, was improper because it should have been issued against Itoman Canada Inc., the owner of the Harrison Hot Springs Hotel, not against DPD Management Ltd. The affidavit stated that the allegations in the statement of claim involving alleged failures to credit amounts to the plaintiff’s company and continued wrongful demands for payments from the plaintiff personally under the principal assessment (found to have been improper by the Tax Court) were demonstrably false. The affidavit then set out the amounts credited to the account of DPD Management Ltd. and a net demand by Revenue Canada on the plaintiff personally. This would seem to ignore the fact that DPD Management Ltd. was found by the B.C. Supreme Court to owe nothing to Revenue Canada and that the plaintiff similarly had no liability. The sort of facts outlined as evidence and relied upon by the defendant have no place in an application to strike out a statement of claim for want of a cause of action, particularly when the facts relied upon are not all that clearly set out in the material. Affidavit evidence is permissible in support of a motion to strike out for want of jurisdiction, but not where, as here, the shortcoming is want of a reasonable cause of action. However, Temple v. Canada was a relevant, reported case upon which the plaintiff also relied. The Minister objected that whatever had been determined in earlier civil litigation was not evidence, based on a strict application of Hollington v. F. Hewthorn & Co. Ltd., an English Court of Appeal decision which may not, however, apply in Canada. The findings in Temple v. Canada may be considered, but should not be given much weight.
The Minister had already pleaded to the whole of the statement of claim and had added a plea, based on the rule in Foss v. Harbottle in order to be in a position to proceed with this motion. Usually, an application to strike out a pleading is brought before pleading over. It is, however, appropriate to deal with a motion to strike out a pleading for want of a cause of action at any time. On occasion, delay may prevent a late motion to strike out, but such was not a factor herein.
Accepting the statement of claim as proven, it would seem that Revenue Canada ignored the B.C. Court of Appeal decision, which cleared the plaintiff’s company and placed the burden of the tax on the owner of the Harrison Hot Springs Hotel. Yet Revenue Canada continued to press the plaintiff personally, as a director, for payment. These portions of the statement of claim should stay.
A wrong was done to the companies which resulted not only in an indirect wrong to the plaintiff as a shareholder, but also in a direct personal sense, in that he lost his employment, personal funds in his own bank accounts, was wrongfully assessed both personally and as a director, and suffered trauma, shock, stress and anxiety. There are a number of exceptions to the rule in Foss v. Harbottle, including those instances in which there is an allegation that personal rights of a plaintiff shareholder have been infringed. The corporate veil has been disregarded by the courts when the interests of justice so require. In practice, where a shareholder seeks to draw aside the corporate veil, the standard is higher. It may be that it is drawn aside only when the special circumstances of the case and justice to a shareholder, who has opted for corporate structure and protection, so demand. Of course, the standard is lower when the issue is justice for a third party. The Supreme Court of Canada recognized in Hercules Managements Ltd. v. Ernst & Young, that a shareholder may have an action for a wrong done to him as an individual. The plaintiff does not have a reasonable cause of action as a shareholder, for it is a cause of action that plainly, obviously and beyond a reasonable doubt cannot succeed at trial. However, his personal claims, i.e. his personal action, could possibly succeed. The Minister, having pleaded to the statement of claim, is not entitled to further particulars at this point as to loss of funds from the plaintiff’s personal account.
Amendment ought to be allowed at any stage of litigation so long as there is no prejudice which cannot be compensated by costs. The amendment was said to have arisen as the result of discovery of documents, from reassessments issued by the Minister, and comments made by the Tax Court in Temple v. Canada. It was accepted that there ought to be reasonable particulars in a pleading which alleges malice. The insertion of the allegation of malice, unlawfulness and an unreasonable basis, attached to the existing subsections to which the Minister has already pleaded, would not handicap the Minister at this point by any specific lack of particulars.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Federal Court Rules, C.R.C., c. 663, RR. 415(1)(n), 419(1)(a),(2).
Federal Court Rules, 1998, SOR/98-106, rr. 181(1)(n), 221(1)(a),(2).
Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1.
Tax Court of Canada Rules (General Procedure), SOR/90-688, s. 54.
CASES JUDICIALLY CONSIDERED
APPLIED:
Foss v. Harbottle (1843), 2 Hare 461; 67 E.R. 189 (Ch.); Coca-Cola Ltd. v. Pardhan (1999), 172 D.L.R. (4th) 31; 85 C.P.R. (3d) 489; 240 N.R. 211 (F.C.A.); leave to appeal to S.C.C. refused; [2000] 1 S.C.R. viii; Coca-Cola Ltd. v. Pardhan (1997), 77 C.P.R. (3d) 501; 139 F.T.R. 223 (F.C.T.D.); Martel v. Samson Band, [1999] F.C.J. No. 374 (T.D.) (QL); Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165; (1997), 146 D.L.R. (4th) 577; 115 Man. R. (2d) 241; 35 C.C.L.T. (2d) 115; 211 N.R. 352; 139 W.A.C. 241; Vardy v. Canada, [1977] F.C.J. No. 910 (T.D.) (QL); MIL Davie Inc. v. Hibernia Management and Development Co. (1998), 226 N.R. 369 (F.C.A.); Canderel Ltd. v. Canada, [1994] 1 F.C. 3 [1993] 2 C.T.C. 213; (1993), 93 DTC 5357; 157 N.R. 380 (C.A.).
DISTINGUISHED:
Dixon v. Canada (1999), 181 F.T.R. 104 (F.C.T.D.); Cameron v. Ciné St-Henri Inc., [1984] 1 F.C. 421 (1983), 2 C.P.R. (3d) 491 (T.D.); Antrim Yards Ltd. v. Canada, [1991] 3 F.C. 459 (1991), 44 F.T.R. 299; 4 T.C.T. 6142 (T.D.).
CONSIDERED:
DPD Management Ltd. v. Itoman Canada Inc., [1993] B.C.J. No. 1819 (C.A.) (QL); Temple v. Canada, [1997] 2 C.T.C. 2678 (T.C.C.); Hollington v. F. Hewthorn & Co. Ltd., [1943] K.B. 587 (C.A.); Rogers v. Bank of Montreal (1985), 64 B.C.L.R. 63; 30 B.L.R. 41 (S.C.); affd (1986), 9 B.C.L.R. (2d) 190 (C.A.); Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2; (1987), 34 D.L.R. (4th) 208; 22 C.C.L.T. 297; [1987] I.L.R. 1-2147; 74 N.R. 360; 21 O.A.C. 4.
REFERRED TO:
Salomon v. Salomon and Co. (1896), 66 L.J. Ch. 35 (H.L.); Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959; (1990), 74 D.L.R. (4th) 321; [1990] 6 W.W.R. 385; 49 B.C.L.R. (2d) 273; 4 C.C.L.T. (2d) 1; 43 C.P.C. (2d) 105; 117 N.R. 321; Operation Dismantle Inc. et al. v. The Queen et al., [1985] 1 S.C.R. 441; (1985), 18 D.L.R. (4th) 481; 12 Admin. L.R. 16; 13 C.R.R. 287; 59 N.R. 1; Attorney General of Canada v. Inuit Tapirisat of Canada et al., [1980] 2 S.C.R. 735; (1980), 115 D.L.R. (3d) 1; 33 N.R. 304. Johnson v. Lyttle’s Iron Agency (1877), 5 Ch. D. 687 (C.A.); Pender v. Lushington (1877), 6 Ch. D. 70; Wood v. Odessa Waterworks Company (1889), 42 Ch. D. 636; Salmon v. Quin & Axtens Ld., [1909] 1 Ch. 311 (C.A.); affd [1909] A.C. 442 (H.L.); British American Nickel Corporation v. O’Brien, Ld., [1927] A.C. 369 (P.C.); Edwards v. Halliwell, [1950] 2 All E.R. 1064 (C.A.); Hayes v. Bristol Plant Hire Ltd., [1957] 1 W.L.R. 499 (Ch.D.).
AUTHORS CITED
Black’s Law Dictionary, 7th ed. St. Paul, Minn.: West Group, 1999.
Gower, L. C. B. The Principles of Modern Company Law, 3rd ed. London: Stevens & Sons, 1969.
Sopinka, John et al. The Law of Evidence in Canada, 2nd ed. Markham, Ont.: Butterworths, 1999.
MOTION to strike out the statement of claim under Federal Court Rules, 1998, paragraph 221(1)(a) as disclosing no reasonable cause of action, and portions of the statement of claim as bare assertions, or demonstrably false; motion by plaintiff to amend the statement of claim as unreasonable assessment. Motion to strike allowed with respect to plaintiff’s claim as a shareholder, but not with respect to his personal action; motion to amend allowed.
APPEARANCES:
Michael R. Scherr for plaintiff.
W. Sean Taylor for defendant.
SOLICITORS OF RECORD:
Pearlman & Lindholm, Victoria, for plaintiff.
Swinton & Company, Vancouver, for defendant.
The following are the reasons for order rendered in English by
Hargrave P.:
BACKGROUND
[1] This action involves a claim against the defendant for misfeasance in the collection of assessments from now defunct companies, DPD Management Ltd. and A.J.F. Temple Co. Inc., which were owned and controlled by the plaintiff, the assessments being by way of a deeming of the companies to be employers who, it is alleged, should have made source deductions for income tax and for unemployment insurance premiums. Also involved is a third defunct company, owned and controlled by the plaintiff, Temple Construction Ltd., which is said to have been unable to carry on as a result of various collection proceedings by the defendant. The plaintiff’s personal interest also gives rise to a claim. The plaintiff’s claim, among other things, is as a director of DPD Management Ltd. and of A.J.F. Temple Co. Inc., who is also liable for the assessments, for economic loss as owner of all three of the companies which were unable to carry on business as a result of the assessments and for personal stress as a result of all of this.
[2] These reasons arise mainly from the defendant’s motion to strike out the statement of claim, principally on the basis of the rule in Foss v. Harbottle (1843), 2 Hare 461; 67 E.R. 189 (Ch). The rule in Foss v. Harbottle, as interpreted through the years, stands generally, with some limited exceptions, for the proposition that duties owed a company may only be enforced through an action by the company itself. There are also some portions of the statement of claim which are said to be bare assertions, or which are demonstrably false and thus should be struck out.
[3] I also touch upon the plaintiff’s motion to amend, to add allegations of malicious and unreasonable assessment. I will set out any other necessary background facts as I proceed with my analysis.
MOTION TO STRIKE OUT: ANALYSIS
[4] The defendant’s motion to strike out the statement of claim, or alternatively to strike out portions of the statement of claim, is under paragraph 221(1)(a), of the [Federal Court Rules, 1998, SOR/98-106] which allows the Court to strike out a pleading when, assuming the facts to be proven, that pleading discloses no reasonable cause of action. There is a further request, in the alternative, for particulars.
[5] Subsection 221(2) of the Rules provides that no affidavit evidence may be presented in support of a motion to strike out for want of a cause of action. This leads to the first of two preliminary points.
Preliminary Points: Use of Affidavit Evidence
[6] As I say, subsection 221(2) of the Rules prohibits the calling of affidavit evidence on a motion to strike out a pleading for want of a cause of action. Here, the defendant relies upon the affidavit of Raymond Prenoveau. That affidavit contains two exhibits. Exhibit A is a very brief judgment of the B.C. Court of Appeal in DPD Management Ltd. v. Itoman Canada Inc. [[1993], B.C.J. No. 1819 (QL)], an apparently unreported decision of 30 August 1993 in Vancouver Registry File CAO14795. That decision, although scant on facts, seems to have determined that DPD Management Ltd., one of the companies completely owned and controlled by the present plaintiff, Mr. Temple, was entitled to enforce contractual debts against Itoman so that DPD Management might pay various debts, including the so-called tax liability to Revenue Canada. The Court of Appeal judges were in some confusion as to the amount of the judgment, whether it should be $87,000 or some $71,000, but that is not important.
[7] Exhibit B to the Prenoveau affidavit is the subsequent decision of the Tax Court of Canada in Temple v. Canada, [1997] 2 C.T.C. 2678, a decision of Mr. Justice Beaubier, of the Tax Court of Canada, involving the present plaintiff. Mr. Justice Beaubier found the assessment by Revenue Canada, which forms part of the basis of the present Federal Court proceedings, should have been not against Mr. Temple’s company, DPD Management Ltd., an agent and a conduit for wage payments for hotel renovations, but against Itoman Canada Inc., the owner of the Harrison Hot Springs Hotel, to which the renovations were being done, Itoman being the principal. As a result, Mr. Justice Beaubier found that the assessment by Revenue Canada, against DPD Management Ltd., was improper. It is fair to say that, at the very least, Mr. Justice Beaubier was not at all impressed by Revenue Canada’s treatment of Mr. Temple, whom he found to be a “mature, reasonable, experienced, competent, knowledgeable businessman” (at paragraph 9), who failed to be accorded the considerations which should have been forthcoming from Revenue Canada. Further, Mr. Justice Beaubier found that Mr. Temple got the idea of transferring the business of DPD Management Ltd. to another of his now defunct companies, A.J.F. Temple Co. Inc., from Revenue Canada officials, a clearly wrong move, a move upon which Revenue Canada capitalized.
[8] The Prenoveau affidavit goes on to say that in the result various allegations contained in paragraphs 57(i) and 57(j) of the statement of claim, involving alleged failures to credit amounts to Mr. Temple’s company and as to continuing to wrongly demand payments from the plaintiff personally under the principal assessment (found to be improper by the Tax Court Judge), are demonstrably false. The affidavit then sets out amounts credited to the account of DPD Management Ltd. and a net demand by Revenue Canada on Mr. Temple personally. This would seem to ignore the fact that DPD Management Ltd., in reality, was found by the B.C. Supreme Court to owe nothing to Revenue Canada and that Mr. Temple similarly had no liability.
[9] The sort of facts outlined as evidence and relied upon by the defendant have no place in an application to strike out a statement of claim, for want of a cause of action. All the more so when the facts relied upon are not all that clearly set out in the material. However, I am aware of Cameron v. Ciné St-Henri Inc., [1984] 1 F.C. 421(T.D.), a decision of Mr. Justice Walsh.
[10] In Ciné St-Henri the defendant sought to rely on affidavit evidence on a motion to strike out portions of the statement of claim on the grounds of a want of a reasonable cause of action under paragraph 419(1)(a) [Federal Court Rules, C.R.C., c. 663]. Mr. Justice Walsh acknowledged subsection 419(2) of the former Rules, similar to our present Rules subsection 221(2), prohibited the use of affidavit evidence. However he proposed an exception where the affidavit clearly showed that an allegation in the pleading was not true, or at least was erroneous and misleading, reasoning that “it would be unreasonable to expect the Court to shut its eyes and render judgment on the assumption that the allegation is true” (page 426). This is a reasonable observation, however the Ciné St-Henri case needs a closer reading. First, the document which Mr. Justice Walsh felt ought to be before the Court and which was exhibited to the affidavit in question, was already part of the record. Second, Mr. Justice Walsh elected not to strike out any portion of the pleadings, but did go on to order particulars. Third, and most important, Ciné St-Henri was a motion to strike out for want of a reasonable cause of action based on want of jurisdiction, not on a mere lack of a reasonable cause of action.
[11] The differentiation between a mere want of a cause of action and complete lack of jurisdiction, in the context of striking out and the use of affidavit evidence for jurisdictional issues, has now been resolved by the Federal Court of Appeal in MIL Davie Inc. v. Hibernia Management and Development Co. (1998), 226 N.R. 369, at paragraph 8:
Generally speaking, where an objection is taken to its jurisdiction, the Court must be satisfied that there are jurisdictional facts or allegations of such facts supporting an attribution of jurisdiction. The existence of the necessary jurisdictional facts will normally be found in the pleadings and in the affidavits filed in support of or in response to the motion. In this respect, the prohibition contained in Rule 419(2) against the admissibility of evidence does not apply when it is the jurisdiction of the Court which is contested as opposed to a mere objection to the pleadings on the basis that they do not reveal a reasonable cause of action (see Erasmus v. Canada, [1993] 1 C.N.L.R. 59 (F.C.A.)). We mention this to dissipate any doubt as to the admissibility of affidavit evidence in the present instance.
In short, affidavit evidence is permissible in support of a motion to strike out for want of jurisdiction, but not when the shortcoming is simply want of a reasonable cause of action.
[12] All of this makes it clear that on the present motion, being merely one to strike out for want of a reasonable cause of action, I ought not to accept the affidavit evidence. However, I do have before me a relevant reported case, being the decision of Mr. Justice Beaubier in Temple v. Canada, supra, a case upon which both sides relied. While I am not bound by that Tax Court decision it is open for me to consider it, just as Mr. Justice Walsh took notice of a document which was already part of the record.
[13] Subsequently, during argument, counsel for the plaintiff sought to rely upon the judgment in Temple v. Canada, supra. Counsel for the defendant took the position that such reliance was improper, for whatever was determined in earlier civil litigation was not evidence. This appears to be a strict application of the English Court of Appeal decision in Hollington v. F. Hewthorn & Co. Ltd., [1943] K.B. 587. There it was determined that evidence of an earlier conviction was not admissible in a civil case as evidence of the underlying facts upon which the judgment was based. The current editors of The Law of Evidence in Canada, 2nd edition, 1999, Butterworths, are not certain whether the rule ever formed part of the common law of Canada: see page 1120. It may be that Hollington is also suspect in that one of the reasons that the English Court of Appeal formulated the rule, rejecting the prior determination, was on the basis of hearsay. However The Law of Evidence in Canada, at page 1123, goes somewhat farther than this by pointing out that if, in Canada, the rule in Hollington is not recognized, as to a previous conviction, then logically it should not apply so far as it relates to an earlier civil judgment:
If the rule in Hollington v. Hewthorn is not to be recognized so far as it relates to a previous criminal conviction, then logically it also should not apply so far as it relates to a previous civil judgment. The fact that it is a civil judgment only would be significant in terms of weight. The party against whom the judgment was rendered would have a greater opportunity to explain it or suggest mitigating circumstances.
On the basis of the comments set out in The Law of Evidence in Canada, I take the view that I may consider Mr. Justice Beaubier’s findings in Temple, supra, which contains the text of the British Columbia Court of Appeal decision in DPD Management Ltd. v. Itoman Canada Inc., but should be wary of giving them much weight. Such findings, even being given little weight and allowing the plaintiff an opportunity to explain, may still be fatal to a defendant who must, on a motion to strike out, satisfy the heavy burden of establishing that it is plain, obvious and beyond reasonable doubt that a claim cannot succeed.
Striking Out After Pleading to the Statement of Claim
[14] In the present instance the defendant has pleaded to the whole of the statement of claim and indeed has added a plea, based on the rule in Foss v. Harbottle, supra, in order to be in a position to proceed with this motion.
[15] Usually an application to strike out a pleading is brought before pleading over it. However a motion to strike out a pleading, on the basis that it discloses no reasonable cause of action, may be brought at any time: see Coca-Cola Ltd. v. Pardhan (1999), 172 D.L.R. (4th) 31, a decision of the Federal Court of Appeal [at paragraph 8]:
In my view Wetston J. correctly applied the established jurisprudence of this Court to the effect that, while normally an application to strike a pleading should be brought before pleading over it, it is permissible to bring a motion to strike at any time under paragraph 419(1)(a) of the former Rules on the basis that the pleading discloses no reasonable cause of action. Wetston J. properly limited his consideration of the motion to that ground which meant, of course, that he could not consider any evidence but was limited to the language of the pleadings.
Leave to appeal this decision to the Supreme Court of Canada was refused 3 May 2000, File No 27392 [2000] 1 S.C.R. viii. To summarize the Pardhan case, it is appropriate to deal with a motion to strike out for want of a cause of action at any time, even after there has been a pleading over, but in considering such a motion I am limited to the language of the pleadings. Of course, there may on occasion be an aspect involving delay, which may prevent a late motion to strike out, points touched upon by both the Court of Appeal and Mr. Justice Wetston, his decision being reported (1997), 77 C.P.R. (3d) 501 (F.C.T.D.). Here I do not fault the defendant for delay.
[16] Of course, the defendant cannot, as she has tried to do in one passage of the written argument for striking out, raise the issue of what she feels is a embarrassing plea by the plaintiff. The time for such an argument is long past, having come to an end with the filing of the defence. I now turn to the merits of the defendant’s motion.
The Merits of the Defendant’s Motion
[17] On a motion to strike out a pleading I must read the impugned pleading in context with a generous eye, striking it out only where it is plain and obvious that it must fail at trial [Martel v. Samson Band, [1999] F.C.J. No. 374 (T.D.) (QL), at paragraph 2]:
Equally elementary is the principle that on a motion to strike, such as this one, the Court must have regard to the whole of the impugned pleading, must read that pleading in context and with what I may call a generous eye and should only strike it if is plain and obvious that the pleading must fail at trial.
Indeed, the party seeking to strike out a pleading has a very heavy burden. That party must establish it as plain, obvious and beyond reasonable doubt that the claim cannot succeed: see for example Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at page 979; Operation Dismantle Inc. et al. v. The Queen et al., [1985] 1 S.C.R. 441, at page 475 and following and Attorney General of Canada v. Inuit Tapirisat of Canada et al., [1980] 2 S.C.R. 735, at page 740.
[18] In the present instance the defendant submits that many of the wrongs of which the plaintiff complains were directed against his companies. In contrast, some wrongs are said, in the statement of claim, to have been done directly to the plaintiff. Here I have in mind, a number of the pleas of the plaintiff, for example, the personal assessments against Mr. Temple as a director of his companies. Accepting the statement of claim as proven, it would seem that Revenue Canada ignored the B.C. Court of Appeal decision referred to in paragraph 8 of the statement of claim, which cleared Mr. Temple’s company and placed the burden of the tax on the owner of the Harrison Hot Springs Hotel. Yet Revenue Canada continued to press the plaintiff personally, as a director, for payment. These portions of the statement of claim which I will in due course consider more fully, will stay. However the argument that the wrongs were done to Mr. Temple’s companies and thus are not actionable by Mr. Temple personally, leads to a consideration of the rule in Foss v. Harbottle, supra, a consideration which is favourable to the defendant. I will now deal with all of this in more detail.
The Rule in Foss v. Harbottle
[19] The defendant begins this portion of the argument with the proposition that a corporation is an entity distinct and separate from its shareholders and directors, referring to Salomon v. Salomon and Co. (1896), 66 L.J. Ch. 35 (H.L.), a decision of the House of Lords. Of course, this theory of distinct legal entity, a separation of the company from its shareholders and directors, is a general rule, with exceptions in special circumstances, for in order to do justice the courts have, on occasion, blurred this distinction by the so-called lifting of the corporate veil, a point to which I will return.
[20] The rule in Foss v. Harbottle, supra, is that individual shareholders do not have a cause of action for wrongs done to the company: if an action is to be brought in respect of such a loss, it must be brought either by the corporation itself, or by way of a derivative action, an action by shareholders, with the wrongdoer and the company as defendants. Here counsel for the defendant has referred me to Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at paragraph 59:
The rule in Foss v. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporation and that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself (through management) or by way of a derivative action. The legal rationale behind the rule was eloquently set out by the English Court of Appeal in Prudential Assurance Co. v. Newman Industries Ltd. (No. 2), [1982] 1 All E.R. 354, at p. 367, as follows:
The rule [in Foss v. Harbottle] is the consequence of the fact that a corporation is a separate legal entity. Other consequences are limited liability and limited rights. The company is liable for its contracts and torts; the shareholder has no such liability. The company acquires causes of action for breaches of contract and for torts which damage the company. No cause of action vests in the shareholder. When the shareholder acquires a share he accepts the fact that the value of his investment follows the fortunes of the company and that he can only exercise his influence over the fortunes of the company by the exercise of his voting rights in general meeting. The law confers on him the right to ensure that the company observes the limitations of its memorandum of association and the right to ensure that other shareholders observe the rule, imposed on them by the articles of association. If it is right that the law has conferred or should in certain restricted circumstances confer further rights on a shareholder the scope and consequences of such further rights require careful consideration.
To these lucid comments, I would respectfully add that the rule is also sound from a policy perspective, inasmuch as it avoids the procedural hassle of a multiplicity of actions.
[21] As an example of the application of the rule in Foss v. Harbottle, the defendant refers to Rogers v. Bank of Montreal (1985), 64 B.C.L.R. 63 (S.C.), affirmed by the B.C. Court of Appeal (1986), 9 B.C.L.R. (2d) 190. There at issue was an action by the officers and shareholders of a company which had allegedly been wrongfully injured through a civil conspiracy by the defendants, including the Bank of Montreal. The defendants were successful in having the action struck out for, as the Court of Appeal pointed out, not only did the rule in Foss v. Harbottle apply, but also, the plaintiffs could not escape the result of that rule by alleging conspiracy for they required direct damage as opposed to consequential damage: see the trial decision at page 93 and following and pages 191 and 192 of the Court of Appeal decision. Here I come to a troublesome point: accepting the statement of claim as if proven, a wrong was done to the companies which resulted not only in an indirect wrong to Mr. Temple as a shareholder, but also in a direct wrong to him personally, in that, despite the so-called corporate veil and an absence of liability on the part of his companies, he not only became statutorily liable for the supposed debts of his companies to Revenue Canada, but also lost his employment.
[22] Counsel for the defendant also refers to two cases in which the rule in Foss v. Harbottle has been applied by the Federal Court. They are Antrim Yards Ltd. v. Canada, [1991] 3 F.C. 459 (T.D.) and Dixon v. Canada (1999), 181 F.T.R. 104 (F.C.T.D.). However, both of those cases involve business losses and reduction of share value, but not either a direct loss, by reason of a director’s liability, or a direct loss of employment, being some of the personal causes of action relied upon in the present situation.
[23] I will begin by dealing with the latter, the Dixon case. There the plaintiffs were shareholders who sued for a loss of share value by reason of the improper actions of the Crown. Mr. Justice Gibson struck out the action as an abuse of process because the shareholders had no action for wrongs done to a company. Mr. Justice Gibson referred to the rule in Foss v. Harbottle, being that where a company acquired a cause of action, in contract or in tort, no cause of action vested in the shareholder, who can only influence the fortunes of the company by exercising her or his rights as a shareholder at a general meeting. Mr. Justice Gibson found it clear that whatever claims the plaintiffs had, they were claims arising because of their status as shareholders and thus the action was struck out on the basis of the rule in Foss v. Harbottle and subsequent cases explaining the rule.
[24] In contrast, in the present instance, Mr. Temple claims not only for loss of share value, but also for direct personal loss, including loss of employment, for loss of personal funds in his own bank accounts, for wrongfully assessing the plaintiff personally and as a director and for trauma, shock, stress and anxiety. These features distinguish the present case from Dixon.
[25] Dixon relied in part upon the Antrim Yards case, supra for the concept that the plaintiff shareholders of Antrim Yards Ltd. had no cause of action for the business losses of the company. Yet Antrim Yards is certainly of help to Mr. Temple, for while the individual plaintiffs, as shareholders, had no cause of action, by reason of Foss v. Harbottle and had failed to show any right of action for recovery of money or damages, they were held to have standing so far as declarations against the validity of legislation were pertinent. In the present instance, as I have already pointed out, only a portion of Mr. Temple’s claim is as a shareholder suing for diminution in the value of his shares in his companies, with the balance being personal claims against the Crown. This also leads to a further consideration of Foss v. Harbottle and some of the exceptions.
[26] In The Principles of Modern Company Law, 3rd edition, (London: Stevens & Sons, 1969), Gower points out at page 582 that “courts have ceased to be moved by pure questions of principle but have instead given weight to the practical advantages of the Foss v. Harbottle rule.” The practical advantages of Foss v. Harbottle are that it prevents a multiplicity of actions by shareholders and, an advantage which is not of relevance here, that if the irregularity complained of by a shareholder may be effectively ratified at a general meeting, it would be a waste of effort to litigate the point. In the result there are a number of exceptions to the rule in Foss v. Harbottle, including those instances in which there is an allegation that personal rights of a plaintiff shareholder have been infringed and here I would note some of the cases on point, being Johnson v. Lyttle’s Iron Agency (1877), 5 Ch. D. 687 (C.A.); Pender v. Lushington (1877), 6 Ch. D. 70; Wood v. Odessa Waterworks Company (1889), 42 Ch. D. 636; Salmon v. Quin & Axtens Ld., [1909] 1 Ch. 311 (C.A.); affirmed by [1909] A.C. 442 (H.L.); British American Nickel Corporation v. O’Brien, Ld., [1927] A.C. 369 (P.C.); Edwards v. Halliwell, [1950] 2 All E.R. 1064 (C.A.); Hayes v. Bristol Plant Hire Ltd., [1957] 1 W.L.R. 499 (Ch. D.), together with the summation of the underlying principle, set out in Gower, supra, at page 584. I will consider the leading Canadian case dealing with the personal rights of the shareholder, Hercules Managements, supra, shortly.
[27] I should also consider whether, as counsel for the plaintiff submits, the corporate veil, whereby a company is an entity distinct from its shareholders, ought to be entirely disregarded or, as it is commonly termed, lifted. I will refer to Madam Justice Wilson’s decision in Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2, at page 10 and following. There, referring to the 4th edition of Gower, Madam Justice Wilson acknowledges that, at one end of the scale, the principle of distinct entities is “not enforced when it would yield a result ‘too flagrantly opposed to justice, convenience or the interest of the Revenue’”. Quite wisely, Madam Justice Wilson then points out that those who opt for the benefits of incorporation also have burdens and if the corporate veil is to be lifted it should only be done in the interest of third parties who would otherwise suffer. Here, interestingly, in pursuing Mr. Temple personally, the defendant has been able to go through the corporate veil: the plaintiff submits that, on this basis, it is only fair that he ought to be able to disregard the corporate veil. This is not an argument in which I put any weight, for the defendant does have a statutory right, under the Income Tax Act [R.S.C., 1985 (5th Supp.), c. 1], to disregard the corporate veil in certain instances. Also interesting is the fact that courts, when it suits them, do disregard the corporate veil. However, on the basis of Foss v. Harbottle, as applied, for example, in Kosmopoulos by the Supreme Court of Canada, supra, it is clear that the corporate veil is not to be lifted merely because the company in question has only one shareholder (see page 11).
[28] Certainly the corporate veil has been disregarded by the courts when the interests of justice so require. I believe, in practice, where a shareholder seeks to draw aside the corporate veil, the standard is higher. Perhaps it is only drawn aside when the special circumstances of the case and justice to a shareholder, who has opted for corporate structure and protection, so demand. Of course the standard is lower when the issue is justice required by a third party.
[29] As I have already noted the Supreme Court of Canada was also quite adamant on this aspect, in Hercules Managements Ltd., supra, so as to preclude the shareholders from bringing personal actions when the actions should have been brought in the name of the corporation. Yet Hercules Managements also confirms that the individual plaintiff in the present action may well have a good cause of action and here I would refer to Mr. Justice La Forest’s decision at paragraph 62:
One final point should be made here. Referring to the case of Goldex Mines Ltd v. Revill (1974), 7 O.R. (2d) 216 (C.A.), the appellants submit that where a shareholder has been directly and individually harmed, that shareholder may have a personal cause of action even though the corporation may also have a separate and distinct cause of action. Nothing in the foregoing paragraphs should be understood to detract from this principle. In finding that claims in respect of losses stemming from an alleged inability to oversee or supervise management are really derivative and not personal in nature, I have found only that shareholders cannot raise individual claims in respect of a wrong done to the corporation. Indeed, this is the limit of the rule in Foss v. Harbottle. Where, however, a separate and distinct claim (say, in tort) can be raised with respect to a wrong done to a shareholder qua individual, a personal action may well lie, assuming that all the requisite elements of a cause of action can be made out.
Here is clear recognition that a shareholder may have an action for a wrong done to him or her as an individual.
CONCLUSION AS TO DEFENDANT’S MOTION
[30] In summary, Mr. Temple does not have a reasonable cause of action as a shareholder, for it is the cause of action that plainly, obviously and beyond a reasonable doubt cannot succeed at trial. However, Mr. Temple’s personal claims, that is his personal action, could possibly succeed. In reaching this outcome I have read the statement of claim with a generous eye, as called for in Martel v. Samson Band, supra, and have left in, as background information, some of the paragraphs which the defendant feels trench upon Foss v. Harbottle.
[31] In reaching this conclusion I have kept in mind all the relevant facts, including some somewhat ambiguous findings set out in Temple v. Canada, supra, and in the included B.C. Court of Appeal decision in DPD Management Ltd. v. Itoman Canada Inc., supra, to which I give little weight. As I have already indicated I have ignored the defendant’s affidavit material which is, as I say, improper on a motion to strike out for want of a reasonable cause of action. The order to follow will reflect the division of causes of action, as shareholder and as in personam claimant. The defendant, having pleaded to the statement of claim, does not require further particulars at this point, as to paragraph 58(c) which deals with loss of funds from his personal account. This present denial of particulars is without prejudice should, following discoveries, particulars be required for trial. I now turn to a brief consideration of the plaintiff’s motion to amend.
MOTION TO AMEND: ANALYSIS
[32] Leaving aside several housekeeping amendments, which are not opposed, the plaintiff wishes to amend the statement of claim to add the concept that the alleged misfeasance of the defendant, referred to in paragraph 57(a) through (k) was done, in each instance, “maliciously or without lawful or reasonable basis”. The plaintiff also wishes to add to paragraph 57 a further four instances of such aggravated misfeasance.
[33] In support of the motion to amend, the plaintiff refers to the well-known concept that amendment ought to be allowed at any stage so long as there is no prejudice which cannot be compensated by means of costs, citing Canderel Ltd. v. Canada, [1994] 1 F.C. 3 (C.A.), at page 10:
…while it is impossible to enumerate all the factors that a judge must take into consideration in determining whether it is just, in a given case, to authorize an amendment, the general rule is that an amendment should be allowed at any stage of an action for the purpose of determining the real questions in controversy between the parties, provided, notably, that the allowance would not result in an injustice to the other party not capable of being compensated by an award of costs and that it would serve the interests of justice.
In Canderel at issue was Rule 54 of the Tax Court of Canada Rules (General Procedure) [SOR/90-688], however, that rule was not substantially different from the amendment provision then in the Federal Court Rules.
[34] The amendment itself is said to come about as the result of discovery of documents and from reassessments issued by the defendant. The plaintiff also referred to some of the comments made by Mr. Justice Beaubier in Temple v. Canada, supra.
[35] The defendant’s position in opposing the amendment to add allegations of malice, of unlawfulness and of unreasonableness, is that there ought, in each instance, to be particulars, rather than merely what the defendant feels are bare assertions. Here the defendant refers to the apparently unreported decision of Mr. Justice Walsh, in Vardy v. Canada, [1997] F.C.J. No. 910 (T.D.), at paragraphs 7 and 9:
It is evident therefore that when plaintiff asserts a conclusion of law stating that certain actions of Defendants were unlawful and illegal he must state the material facts on which this conclusion is based, and when he alleges that defendant officers acted with malice, this being a condition of mind, he must give particulars of the facts on which this conclusion is based.
…
… the plaintiff must have some facts on which to base his claim and should not commence proceedings without some knowledge of the facts required to establish his claim, and hope to obtain the necessary factual information subsequently by engaging in what might be referred to as a “fishing expedition”.
Vardy was based upon former paragraph 415(1)(n) of the Rules, however there is no material difference between that rule and present paragraph 181(1)(n). I will accept that there ought to be reasonable particulars, in a pleading which alleges malice. For that reason, I do not need to consider the case law involving the pleading of fraud, to which I have been referred by the defendant.
[36] The defendant submits that the use of the term “falsely”, by the plaintiff in the proposed amendment of paragraph 57(l) amounts to a bare assertion of fraud. The word “falsely”, which is used in the proposed new paragraph 57(l), has, contrary to the submission of the defendant, a very different meaning from “fraudulently”. For example, the current 7th edition of Black’s Law Dictionary, St. Paul, Minnesota, 1999, West Group defines falseness in terms of an untruth, a deceit or a lie, which may be so by intent, by accident or by mistake. In contrast, a fraud is a known misrepresentation, or a reckless misrepresentation made without belief in its truth, designed to induce another to act to his or her detriment. Similarly, the Shorter Oxford Dictionary gives to falseness a connotation of error, which may extend even to mendaciousness and deceit, whereas fraud, while at one time extending to deceit, is defined in terms of dishonesty with the intent of obtaining an unjust advantage. The two words are very different. I am not about to read into the allegation of a false claim, made on behalf of the Crown, an allegation of a fraudulent claim.
[37] While I will allow the amendment in paragraph 57(l), the plaintiff must, simultaneously, provide particulars as to how the plaintiff was pursued for amounts owing by Temple Construction Ltd., which appears to be a new plea. In the alternative, if Temple Construction Ltd. ought not to have been referred to in paragraph 57(l), the amendment is to go with Temple Construction Ltd. omitted. As to the allegation of malice in paragraph 57(l), I do not see that further particulars are required at this point, for one might well determine malice from what Mr. Justice Beaubier had to say in Temple v. Canada, supra.
[38] Turning to paragraph 57(m), the new allegation there is that the defendant, maliciously or without a lawful or a reasonable basis, disallowed various expenses of Temple Construction Ltd. for the year 1990, an assessment which is said to have been erroneous and which was vacated 10 April 2000 when all of the previously disallowed expenses were allowed. While this is said to impinge on Mr. Temple personally, by way of economic and emotional injury to the plaintiff, I do not see the pleading, as it stands, to show any reason why it ought not to fall under the rule in Foss v. Harbottle, supra. Amendment 57(m) will not be allowed.
[39] The amendment set out in proposed paragraph 57(n), refers to maliciously advising the plaintiff to transfer employees between two of his companies, DPD Management Ltd. and A.J.F. Temple Co. Inc., so as to be able to carry on business, with the improper purpose, on the part of the defendant, of then being able to assess the transferee for the alleged tax liability of the transferor. The defendant says that this plea offends the rule in Foss v. Harbottle. However, if one looks at earlier allegations in the statement of claim and accepts them as if proven, Mr. Temple was personally assessed for the tax liability of both the transferee and the transferor companies. On that basis the proposed amendment is allowed.
[40] Finally, the plaintiff now wishes to amend to allege a malicious and deceitful response to request from Mr. C. Cook, Member of Parliament, for information. The defendant objects to language in the proposed amendment, referring to the heavy-handed manner in which Revenue Canada pursued Mr. Temple’s companies and to references to representatives of the Minister. Yet I believe, given the views of Mr. Justice Beaubier and the tax department memoranda, attached to the affidavit of Ranj Saroya, sworn 10 May 2000, that there are grounds and particulars for this plea and that it is not merely a bare allegation unsupported by material facts.
CONCLUSION AS TO AMENDMENT
[41] The insertion of the allegation of malice, unlawfulness and an unreasonable basis, attached to the existing subsections of paragraph 57, were paragraphs to which the defendant has already pleaded. While the plaintiff now alleges some aggravated circumstances, I do not see that the defendant is handicapped at this point by any specific lack of particulars.
[42] As to the new subsections under paragraph 57, amendments (n) and (o) are allowed as sought. Amendment (l) is allowed, subject either to the plaintiff furnishing particulars as to the involvement of Temple Construction Ltd. or, in the alternative, with the omission of Temple Construction Ltd. if it has been inadvertently included in the proposed amendment.
[43] Amendment 57(m) is not allowed, on the basis of the rule in Foss v. Harbottle.
[44] I thank counsel for their work, for their argument, and for the extensive material which they have provided.