3.44: When third party claim may be filed
3.68: Court options to deal with significant deficiencies

Case Summary

The Plaintiff purchased assets from the Defendant Respondents using the Third Party Appellants to conduct the due diligence process leading up to the purchase. The Plaintiff sued the Defendant Respondents alleging that the description of the assets was inaccurate, and the Defendant Respondents claimed against the Third Party Appellants. The Third Party Appellants sought to strike the Third Party Claims against them, arguing that the Claims were not of the type that could be properly added under Rule 3.44, and the Claims did not disclose a reasonable cause of action. The Case Management Judge allowed the Third Party Claim to be amended holding that there was a reasonable prospect that the new cause of action could succeed. Further, the Case Management Judge concluded that it was reasonably possible that the Third Parties could be found partly responsible and so they should be bound by the decision; this was enough to engage Rule 3.44. The Third Parties appealed.

The Court of Appeal stated that the interpretation of the Rules of Court is a question of law, with the standard of review being correctness. The application of Rules to a particular of set of facts is a mixed question of fact and law with the standard of review being palpable and overriding error. With respect to the failure to disclose a cause of action, the Court noted that any pleading can be struck out under Rule 3.68(2)(b) if it discloses “no reasonable claim or defence to a claim”. No evidence is admitted on such an Application, and the facts as pleaded are presumed true under Rule 3.68(3). Citing prior Supreme Court of Canada authority, the Court of Appeal set out the modern test for striking out pleadings and noted that the trend towards simplifying proceedings had been reinforced recently by the Supreme Court in Hryniak v Mauldin, 2014 SCC 7. Striking pleadings that have no reasonable prospect of success is consistent with the new authority. With respect to the scope of the Third Party Claims, the Court observed that the third party process is governed by Rule 3.44: this Rule permits a wider range of Third Party Claims and is broader than its predecessor because it is not limited to claims of indemnity or contribution. The Rule is now another form of joinder, but it does not mean that any potential issue or claim should be joined together using the third party process. The Court clarified (at para 26):

… At a minimum, the third party notice must disclose a legally recognized claim by either the plaintiff or the defendant against the third party. The complexity, expense, and time demands of an action will vary directly depending on the number of parties and causes of action. At some point issues of proportionality and efficiency dictate that collateral claims be tried on their own. Prevention of multiplicity of proceedings is desirable, but so too is allowing the economic and timely advancement of the original action.

The Court held that there was no independent duty of care owed by the Third Party Appellants to the Defendant Respondents, so the Third Party Notice could not be supported based on Rule 3.44(b). The Court considered the Defendant Respondent’s argument that the Third Party Appellants should bound by any decision in the Action in order to avoid inconsistent results as between the Plaintiffs and Third Parties, and that any damage suffered by the Plaintiff was the fault of the Third Parties. The Court commented that the flexibility of Rule 3.44(c) should not be undermined by rigid rules about when it can or cannot be used, especially at the early stages of litigation. However, in the result, the Court held that there was no prospect of any findings being made which would engage the Third Party sufficiently to make the Third Party Notices necessary. The Appeal was allowed and the Third Party Notices were struck.

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