Gabbs v. Bouwhuis

2005 BCSC 1782 Gabbs v. Bouwhuis

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Gabbs v. Bouwhuis 2005 BCSC 1782 Date: 20051220 Docket: S81313 Registry: New Westminster Between: Ernest Gabbs Plaintiff And Hendrikus Bouwhuis Defendant Before: The Honourable Madam Justice Bennett Reasons for Judgment Counsel for the Plaintiff R. Shantz & C. Browning Counsel for the Defendant T. Woods Date and Place of Hearing: September 23, 2005 New Westminster, B.C. [1] This is an appeal from a Master alleging error in his refusal to amend the pleadings in this action. [2] In 1999, the plaintiff loaned $125,000 to Cannon Machine Works Ltd. ("Cannon"), to be paid back monthly over five years with 12% annual interest. [3] The agreement specifically states "This agreement is supported by a promissory note between the parties." [4] The promissory note says: Demand Promissory Note $125,000.00 For value received, the undersigned promises to pay Ernest Gabbs on demand the sum of one hundred twenty five thousand dollars, together with interest at the rate of twelve percent (12%) per annum both before and after default, until paid in full. Signed at Coquitlam, B.C. this 16th day of March 1999. Witness Cannon Machine Works Ltd. Witness Hans Andriesse (Guarantor) Witness H. Bouwhuis (Guarantor) [5] The defendant signed the note with "(Guarantor)" beside his name. The plaintiff claims the defendant was the controlling mind of Cannon

when the loan was made. [6] Cannon has since gone into bankruptcy. [7] The plaintiff has pleaded that the defendant is a guarantor of the loan. He now wishes to amend his pleadings to add the following two paragraphs: In the alternative, the plaintiff's claim is against the defendant as the maker of the note. In the alternative, the plaintiff's claim is against the defendant as accommodation party to the note. [8] The Master dismissed the application on the basis that the pleadings are inconsistent with those contained in the original statement of claim. Issue: Was the Master Clearly Wrong When he Refused the Amendment? [9] Counsel for the plaintiff submitted that since the order of the Master precludes them from advancing a claim, the order is final and therefore I may substitute my discretion for that of the Master. The test on appeal from an interlocutory application before a Master is whether the Master was clearly wrong: See Abermin Corp. v. Granges Exploration Ltd. (1990), 45 B.C.L.R. (2d) 188 (S.C.). [10] Since I have concluded for the reasons that follow that the Master was clearly wrong, I do not need to consider this issue any further. [11] The defendant submits that a person cannot be a guarantor of a note and the maker of the note. Further, he submits that an "accommodation party" is not a guarantor. [12] His position is that by amending the pleadings, the court

would be allowing new claims to be brought forward which are inconsistent with the earlier claims. [13] Rules 19(7) and 19(8) of the Rules of Court, B.C. Reg. 221/90, are set out below: Inconsistent allegations (7) A party shall not plead an allegation of fact or a new ground or claim inconsistent with the party's previous pleading. Alternative allegations (8) Subrule (7) does not affect the right of a party to make allegations in the alternative or to amend or apply for leave to amend a pleading. [14] The defendant submits that a party cannot "make alternative allegations by way of amendment that are fundamentally inconsistent with the allegations first pleaded." [15] The defendant relied on United Australia Ltd. v. Barclays Bank, [1941] A.C. 1 (H.L. (Eng.)) and cited with approval in Morrison-Knutson Co. Inc. et al v. British Columbia Hydro and Authority, [1978] 4 W.W.R. 193 at pp. 245-246. [16] The Master accepted these submissions. [17] With respect to those who think otherwise, those decisions, aforementioned, have nothing to do with inconsistent or alternative pleadings. In Mahoney v. National Bank Financial Limited, 2005 NSCA 139, Bateman J.A. said the following at para. 21: The appellants rely on United Australia Limited v. Barclays Bank Limited, [1941] A.C. 1 (H.L. Eng.) and, in particular, Lord Atkin's speech at p.

30. But that case and that passage in it have nothing to do with the proposition advanced by the appellant. The case concerned the ancient doctrine of waiver of tort and the passage in Lord Atkin's speech relates to a party who "... with full knowledge ... has done an unequivocal act showing that he has chosen ..." one of two inconsistent remedies. There is nothing before us to support such a conclusion here. With respect, counsel for the appellants has confused the well recognized principle that one cannot plead something known by the pleader within its own knowledge to be false, with a principle requiring the party to plead only what the pleader knows to be true. The first statement is correct; the latter is not. An opinion of solicitors based on their belief that there is strong evidence to support a proposition does not result in the client thereby "knowing" that any other position is false. [18] I respectfully adopt this reasoning. [19] The defendant relies on the decision of Melnick J. in Bratsch Inc. v. LeBrooy et al (1991), 3 C.P.C. (3d) 192, where Melnick J. refused an amendment to a pleading on the basis of inconsistency relying on the above noted decisions. This decision has been criticized by legal writers for interpreting "previous pleading" as including the same document. See B. McLachlin and J. Taylor, British Columbia Practice, 2d ed. vol. 1 (Markham: LexisNexis

Canada, 2005) at p. 19-13-20. [20] This decision has not, as far as my research has taken me, been applied in any other decision in British Columbia. The rule relating to a prohibition against inconsistent pleadings (also known as "departure") is of long standing. See Business Depot Ltd. v. Lehndorff Management Ltd. (1996), 81 B.C.A.C. 135 at para. 23-24. In fairness to Melnick J., none of the cases addressing the rule of inconsistent pleadings per se, appeared to have been cited to him. I am alive to the principles in Re Hansard Spruce Mills, [1954] 4 D.L.R. 590 (S.C.). It is clear that the Bratsch decision did not refer to the significant body of case law on this point and therefore is not binding authority. The decision refers to the legal issues relating to contract law and not to the law relating to pleadings. In any event, the Bratsch decision deals with the election of remedies in a contract dispute. That is a very different situation than the issue before me. [21] Finally, Melnick J. did not have the benefit of the decision in Mahoney, supra. [22] The rule of departure is described by D.B. Casson in Odgers on High Court Pleadings and Practice, 23 Ed. (London: Sweet and Maxwell/Stevens, 1991) at p. 253: It is at the stage of reply that the rule against what is called "a departure in pleading" applies for the first time. "A party shall not in any pleadings make any

allegation of fact, or raise any new ground of claim, inconsistent with a previous pleading of his." A departure takes place when in any pleading the party deserts the ground that he took up in his preceding pleading, and resorts to another and different ground; or, to give Sir Edward Coke's definition, "A departure in pleading is said to be when the second plea containeth matter not pursuant to his former, and which fortifieth not the same; and therefore it is called decessus, because he departeth from his former plea" (Co.Litt. 304a). This is clearly embarrassing; a reply is not the proper place in which to raise new claims; to permit this would tend to spin out the pleadings to an intolerable length. The plaintiff must amend his statement of claim by adding the new matter as a further or alternative allegation. (emphasis added). [23] The rule is also explained in W.B. Williamson and R.J. Rolls' The Law of Civil Procedure, vol. 2 (Toronto: Butterworths, 1970) at pp. 666-668: "A subsequent pleading shall not raise any new ground of claim or contain any allegation of fact inconsistent with the previous pleadings of the party pleading the same." The rule simply means that a party's second pleading must not contradict the first. A plaintiff must not set up in his reply a new cause of action which is not raised in his statement of claim. The reply must not contradict or depart

from the statement of claim. A departure in pleadings exists where a party quits or departs from the case or defence which he has first made, and has recourse to another. This rule against departure applies only to pleadings in the same action. Examples: In an action on a policy of insurance where the plaintiffs allege in the statement of claim that all conditions in the policy have been fulfilled and in their reply say that these conditions were waived, there is a departure. If a statement of claim alleges a negligent breach of trust, the reply cannot properly allege that the breach of trust was fraudulent. Inconsistent claims should be pleaded, if at all, alternatively in the statement of claim. If the defence raises an issue which causes the plaintiff to change his mind, the proper course is for him to amend his statement of claim. He may do so once without leave before replying. (emphasis added). [24] Thus a party may plead inconsistent claims in the statement of claim and defence. The party cannot, however, make an alternative claim that is inconsistent in reply or in a defence to a counterclaim. See also Hebert v. Vaughan, [1972] 3 All E.R. 122 (Ch.D.). [25] I conclude that the two amendments sought are proper alternative claims and there is no violation of Rule 19(7). [26] The defendant also raised the issue of whether the pleadings are "useless". The Master did not deal

directly with this point, however, since it was argued fully before me, I will address the issue. [27] The defendant submits that in discovery the plaintiff persistently stated that the defendant "personally guaranteed" the loan. He submits this evidence puts the ability to claim the defendant was the principle debtor beyond the plaintiff and therefore the amendments are useless. [28] The definition of "guarantee" is a legal definition. Many principle debtors "guarantee" repayment. This does not then legally define the debtor as a "guarantor". Indeed, a guarantor can, in some circumstances, become a principal debtor. The pleading cannot be said to be useless. [29] The courts take a generous approach to the question of amendments. See Victoria Grey Metro Trust Co. v. Fort Gary Trust Co. (1982), 30 B.C.L.R. (2d) 45 (S.C.) at para. 2. [30] The amendment is made after discoveries, however, this is not uncommon. The trial date has not been set. There is no prejudice to the defendant. [31] I conclude that the Master was clearly wrong in his decision to disallow the amendments. The application to amend is granted. The plaintiff will have his costs in this application and before the Master on Scale 3 in any event of the cause. "E.A. Bennett, J." The Honourable Madam Justice E.A. Bennett