H&N Enterprises Inc. v. Novacation Inc.

H&N Enterprises Inc. v. Novacation Inc. Court Supreme Court Date 2021-01-13 Citation 2021 NSSC 191 Docket Hfx No. 499827 Judge/Registrar/Adjudicator Brothers, Christa M. (Honourable Justice) Document Type Decision Decision Content SUPREME COURT OF Nova Scotia Citation: H&N Enterprises Inc. v. Novacation Inc., 2021 NSSC 191 Date: 20210113 Docket: Hfx No. 499827 Registry: Halifax Between: H&N Enterprises Inc.& Brent Hering Plaintiffs v. Novacation Inc., Fred M. Kern, Stephane Ager Kirz, Anthony E. Smith, Plum Holdings, LLC, the Kirz Revocable Trust, Whyte Dog Holdings, LLC, and Odin Nutraceuticals Inc. Defendants Decision Motion to Strike Pleadings Judge: The Honourable Justice Christa M. Brothers Heard: January 13, 2021, in Halifax, Nova Scotia Additional Submissions March 23, 2021 and April 30, 2021 Counsel: Gavin Giles, Q.C. and Raylene Bangor, for the Plaintiffs Derek Brett, for the Defendants, Kern and Plum Holdings Colin Bryson, Q.C. did not appear for the Defendants Novacation Inc., Anthony E. Smith and Odin Nutraceuticals Inc. who self-represented on this Motion By the Court: Overview [1] The plaintiffs claim against the defendants in negligence, deceit, breach of contract, breach of trust, breach of fiduciary duty, breach of the duty of good faith, and advance a shareholders’ oppression claim. The factual backdrop of these claims is a series of real estate ventures which have allegedly failed, resulting in financial losses to the plaintiffs but financial and personal gain to the defendants. Several of the defendants advance this motion to strike the plaintiffs’ statement of claim in its entirety, claiming that it is rife with defects which include prolixity, incomprehensibility, irrelevancy, pleading of evidence, and pleading of argument. Taken as a whole, the defendants argue this pleading is an abuse of process and must be struck in its entirety on account of numerous violations of the Civil Procedure Rules concerning pleadings. [2] For the reasons that follow, I conclude that while the pleading is not a consistent example of best practice, and in sections lacks conciseness and is verbose presenting a challenge, at times, to digest, it does not rise to a level requiring the Court to strike the pleading in its entirety. Counsel must be given some leeway to plead as they see fit, striking a balance between under inclusivity and over inclusivity. Simply put, Counsel should craft their pleading, using their professional judgment, keeping in mind the rules of pleading. While this pleading is not an example of a succinct and concise pleading, it is not so deficient that it must be struck. [3] I was contacted by Michelle Awad Q.C, new counsel for the plaintiffs, on March 23, 2021, advising that the parties were in discussions concerning a Consent Dismissal Order and advising that this decision may not be necessary. The anticipation was that the documentation might be finalized by mid-April 2021. On April 26, 2021, the Court inquired from the parties as to whether settlement documentation would be forthcoming or if the parties were still looking for a decision on this motion. The parties’ efforts were said to be at an impasse. Given this and not having heard further from the parties, I am rendering the Court’s decision in this matter. Background [4] The factual background to this proceeding was set forth by Norton, J. in H&N Enterprises Inc. v. Novacation Inc., 2020 NSSC 303, as follows: 2 The Plaintiff, H&N Enterprises Inc. ("H&N") is a shareholder in Novacation Inc. ("Novacation"). The Plaintiff Brent Hering ("Hering") is the principal of H&N and a director of Novacation. 3 Novacation is the owner of Strum Island, Mahone Bay, Nova Scotia on which it has constructed a luxury house for the purpose of rental and/or resale for profit. 4 The other shareholders of Novacation and their principals are The Kirz Revocable Trust (Stephanie Kirz), Whyte Dog Holdings, LLC (Stephanie Kirz) and Odin Nutraceuticals Inc. (Anthony Smith). All are Defendants in the underlying proceeding. 5 The other Defendants are a former shareholder, Plum Holding Inc., LLC, and its principal Fred Kern. 6 The Articles of Association of Novacation were put in place in 2016 when H&N was the sole shareholder. They contain a provision that requires its shareholders to fund the operating losses of Novacation through pro rata assessments of its shareholders. The Articles further provide that the shares of shareholders can be forfeited should they not pay their assessments. 7 Novacation has not been profitable since at least 2017 and has regularly assessed its shareholders for its operating shortfalls. 8 H&N commenced the underlying action in August 2020. The Plaintiffs claim against Novacation and its remaining shareholders and former shareholder for certain improper, oppressive and tortious conduct. [5] The defendants move to have the plaintiffs’ second amended Notice of Action (“the statement of claim”), filed on December 14th, 2020, struck. The defendants describe the Statement of Claim as a “long, confused, and confusing narrative of facts” containing “a long, rambling historical account of a business relationship between Plaintiff, Hering, his mother - Kathleen Nobles - and the Defendant Kern”. The defendants argue that the claim, which is 39 pages in length, suffers from key defects pursuant to the requirements of the Nova Scotia Civil Procedure Rules including (and I am paraphrasing): 1. incomprehensible passages; 2. inclusion of irrelevant material and lack of conciseness; 3. pleading evidence; 4. portions of the claim consist of pure argument, use hyperbole, or are repetitious; and 5. incorrect statements of law. [6] The defendants ask the Court to strike virtually every single paragraph of the Statement of Claim. [7] While the defendants have identified some failures in the pleadings, none of them alone or taken together persuade me that the whole claim should be struck. Admittedly, some of the timing is not clearly alleged in the claim, and there is not a lot of specificity in regard to the ownership interest of certain individuals named, however the causes of action are identified and the material facts are pled. Any issues can be followed up with a demand for particulars of the defendants if they so chose. Position of the Parties [8] The plaintiffs allege the following causes of action: 1. Deceit, 2. Negligence, 3. Breach of contract, 4. Breach of trust, 5. Breach of fiduciary duty, 6. Breach of the duty of good faith in contractual performance, and, 7. Breach of the provisions of the Third Schedule of the Companies Act, R.S.N.S., c. 81. [9] The defendants maintain that the drafting of the Statement of Claim makes it very difficult for them to respond and defend the action. They complain of insinuations in the claim; repetition throughout the claim; as well as redundancy and prolixity. In addition, the defendants say material facts are not pleaded, but much of the pleading consists of evidence. In addition, the claim includes some paragraphs which are simply background information and allege no facts to base a cause of action. They appear to be akin to narrative in the claim. [10] The defendants argue the plaintiff has violated most if not all of the rules of pleading. They characterize these not as deficiencies, but as radical defects. [11] The plaintiffs respond that there is nothing on the face of the Statement of Claim that makes it plain and obvious that it must be struck. They say the claim is very clear. Counsel for the plaintiffs summarized their position at the hearing as follows: Let's not of course, My Lady, ignore what those claims are in sum and substance. They are claims that fundamentally Mr. Kern and Plum Holdings have had their hands in the plaintiff’s pockets for years. Through this scheme and that one; through this bait and that switch; through corporate documentation, highly dubious in nature; through the development of a luxury mansion of a type likely unheralded in Nova Scotia history and for which there appears to be no market. Neither as a rental facility nor as a straight-out sale. Instead of the small cabins which would be built and sold.; and, through the rapacious demands for cash which appear or at least are alleged to have nothing whatsoever to do with the best interest of Novacation or any of the interests which the plaintiffs have or may in the past have had but everything to do with the best interests of the defendants, who get to hang out in this unheralded, luxurious mansion, in part at the plaintiff’s expense. And, let’s not of course forget the allegations of the defendants self-dealing. They’re living in the luxury mansion at the expense of the plaintiffs as just stated. The occupation of Strum Island, or at least a portion of Strum Island, by Mr. Smith and Odin for nothing, buckshee, gratuitously. And My Lady, if it weren’t all so sad, so oppressive and so deceptive and so unfair it might even be laughable, but far from that. [12] The plaintiffs also claim that the defendants failed in their duties to the plaintiff by allowing their own self-interest to prevail and that they breached their fiduciary duties and duty of honesty, loyalty, candour and to favour the plaintiffs’ interest over their own. They rely upon UPM-Kymmene v. UPM-Kymmene Miramichi Inc., (2002), 214 D.L.R. (4th) 496 (Ont. Sup. Ct. J.) The plaintiffs acknowledge that the defendants are entitled to know the case to be met and to be aware of what the plaintiffs are contending are the facts. [13] The plaintiffs say they are steering a course between the shores of insufficiency and excessive pleadings. They contend that the pleading is comprehensive and that it sets forth the material facts and elements of the claim. While the claim is lengthy, they say, no authority has been raised by the defendants for striking a pleading merely for being over-lengthy or verging on being verbose. [14] The plaintiffs agree that background facts were pleaded and admits that paragraphs 51-65 could be struck, as those paragraphs are simply background, but do argue that these paragraphs give “context” to the claim. Issue: [15] Should the plaintiffs’ claim be struck in its entirety, or in part? Law and Analysis [16] The requirements for filing pleadings appear in multiple sections of the Nova Scotia Civil Procedure Rules. Rule 4.02(4) outlines the required contents of a statement of claim: 4.02((4) The statement of claim must notify the defendant of all the claims to be raised by the plaintiff at trial, conform with Rule 38 - Pleading, and include each of the following: (a) a description of the parties; (b) a concise statement of the material facts relied on by the plaintiff, but not argument or the evidence by which the material facts are to be proved; (c) reference to legislation relied on by the plaintiff, if the material facts that make the legislation applicable have been stated; (d) a concise statement of the remedies claimed, except costs [17] Civil Procedure Rule 38 addresses further principles of pleadings: 38.02 (1) A party must, by the pleading the party files, provide notice to the other party of all claims, defences, or grounds to be raised by the party signing the pleading. (2) The pleading must be concise, but it must provide information sufficient to accomplish both of the following: (a) the other party will know the case the party has to meet when preparing for, and participating in, the trial or hearing; (b) the other party will not be surprised when the party signing the pleading seeks to prove a material fact. (3) Material facts must be pleaded, but the evidence to prove a material fact must not be pleaded. (4) A party may plead a point of law, if the material facts that make it applicable are also pleaded. 38.03 (3) A pleading must provide full particulars of a claim alleging unconscionable conduct, such as fraud, fraudulent misrepresentation, misappropriation, or malice. [18] Bodurtha, J. provides a helpful review and articulation of the principles to be applied in this motion in Layes. v. Bowes, 2019 NSSC 298. [19] Distilled from the case law, the following principles are of assistance: 1. A pleading must sufficiently inform the defendant of the case she has to meet. 2. A pleading must contain a reasonable cause of action – that is setting forth the material facts for the constituent elements of the claim. 3. Pleadings must be concise but provide enough information for the opposing party to understand the claim that must be met. 4. Material facts are to be pleaded but not evidence in proof of those facts– the distinction between the two has been noted as difficult to ascertain at times: “it is often difficult to separate material facts from evidence” Fairbanks v. Nova Scotia (Attorney General), 2000 NSSC 103. 5. The Court must consider whether the opposing party is prejudiced by the pleading as it stands. 6. Pleadings should not contain opinion, argument, or irrelevant facts. 7. The drafter of a pleading will be given some latitude. [20] Additionally, we know that it is a high threshold to show it is plain and obvious that a pleading discloses no reasonable claim. (Knowledge House Inc. v. Stewart McKelvey Stirling Scales, 2007 NSCA 113 and Cooper v. Atlantic Provinces Special Education Authority, 2008 NSCA 94). [21] In Capital Markets Technologies, Inc. v. Prince Edward Island, 2016 PESC 4, the Supreme Court of Prince Edward Island, considered an equivalent rule of court and noted at paragraph 14: [14] That Rule provides the basis for determining what a proper pleading should and should not contain. A statement of claim (or a statement of defence) should not become a rambling narrative of the relationship between the parties but should clearly and concisely recite only essential or material facts necessary to base a claim. Superfluous, irrelevant, extraneous, repetitive, or immaterial statements are not to be tolerated. [22] The court in Capital Markets Technologies, Inc, went on to address scandalous pleadings: 37 ... A pleading can be scandalous when it is offensive, irrelevant, or, in addition, as in this case, constitutes a collateral attack asserting a cause of action against a non-party, leaving the non-party no ability to answer to the claim. Taylor J. also addressed this issue in Ayangma, supra, where the statement of claim included accusations against non-parties, alleging they engaged in a conspiracy. At para. 50(l) he stated: 50 (l) The statement of claim is scandalous at many points (Rule 25.11(b)). It accuses the Human Rights Commission (paragraphs 129, 158) and the French and Eastern School Board (paragraph 129) of conspiracy, and the PEI legal community (paragraphs 127, 128, 182, 234, 251, 254, 276, 290, 291) of malice, abuse of court process, and possibly defamation. These bodies are not parties to the action, and the claim is therefore scandalous in the legal sense, meaning that it is both offensive and irrelevant. [23] In Ayangma v. Prince Edward Island, 2005 PESCTD 25, the Supreme Court of Prince Edward Island said the following: [20] In addition to the provisions under the Rules of Civil Procedure, the court has an inherent jurisdiction to strike pleadings which are oppressive, frivolous, vexatious, embarrassing or an abuse of the process of the court … [21] "Frivolous", "vexatious", "abuse of the process of the court" (not to be confused with the tort of abuse of process), and "embarrassing" are to some extent terms of art in the law. They bear their common usage meanings together with specific meanings attributed to them in the operation of the law. [22] The terms are sometimes used interchangeably, and their meanings are not closed; they often appear to overlap and are fluid and fact based… [23] Among the meanings attached to all these terms are variations on the theme that the pleading is without merit or asks for relief that cannot or should not be given or discloses no reasonable cause of action or defence. If this were all the terms meant, it would not be necessary to include them in the Rules, as Rule 21.01(1)(b) already empowers the court to strike out a pleading that discloses no reasonable cause of action or defence. [24] In addition, however, these terms are used to describe violations of the rules of pleadings and procedural violations. When used in these circumstances, the terms are employed to describe pleadings which: a) violate the rules of pleadings; b) are confused, rambling, ambiguous or difficult to understand; c) contain irrelevant or immaterial facts, or evidence as opposed to facts; d) are redundant or unnecessarily prolix; e) are vindictive or used for an ulterior purpose; f) would involve the parties in a dispute that is wholly apart from the issues; g) contain opinions or argument; h) while technically permissible, are still contrary to the intent of the rules of pleading … [49] The problems identified in the Prince Edward Island cases which may lead to having a statement of claim being struck as frivolous, vexatious, an abuse of process, or something which may prejudice or delay the fair trial of the action are: 1) unnecessary length; 2) improper pleading of evidence rather than material facts to support a party's claim; 3) difficulty in ascertaining what the plaintiff seeks; 4) repeated breach of the rules of pleading ("plain and obvious"); 5) impossibility of fixing the claim by a series of amendments; 6) whether a series of amendments would make of it a new statement of claim; 7) whether the defendant may be embarrassed or prejudiced in meeting the claim; 8) whether the claim pleads "facts" which are speculative. [24] Indeed, the above noted case law condemns a pleading that is rambling, redundant and prolix. This pleading is, in sections, so. However, the case law in Nova Scotia does not suggest that a lack of conciseness should in all cases result in the party starting from scratch and restating its entire pleading. When one reviews the above noted principles, this pleading is rambling at times and argumentative at times. But does it do what a pleading should? Does it state the material facts, and does it put the defendants on notice of the claims it must respond to? Simply put, I conclude that it does. [25] The Newfoundland Court of Appeal discussed the terms “frivolous” and “vexatious” in Hynes v. Pro Dive Marine Services Ltd., 2016 NLCA 17, at para. 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). [26] I do not find the pleading at issue here is frivolous or vexatious. [27] In Blinn v. Harlow, 2008 NSSC 42, (aff’d) 2008 NSCA 79, the Court stated that where a pleading does not disclose a cause of action, it will be struck: 22 In that case I stated it was often difficult to distinguish between fact and evidence but it is clear that paragraph number 3 (which actually consists of four paragraphs) in the defences of both defendants are extremely irregular having radical defects. They should be struck for a number of reasons including they do not disclose a reasonable cause of defence. [28] Here it cannot be said that the pleading does not set forth causes of action. It clearly does. [29] Different jurisdictions may have different levels of scrutiny to the determination of whether pleadings should be struck. The Prince Edward Island authority above may point to a fairly stringent standard. Ontario, on the other hand, seems to take a more liberal approach to pleadings and whether those courts will interfere with drafters of the pleadings despite the fact that the PEI and Ontario Rules are substantially identical. In Toronto (City) v. MFP Financial Services Ltd., 2005 CarswellOnt 3324, [2005] O.J. No. 3214, (Ont. Sup. Ct. J.) for example, the Court discussed how challenged pleadings can be assessed by revisiting first principles such as fairness, judicial economy and the exposition of truth: 15 The distinction between material facts, particulars and evidence is not a bright line and there will be situations in which the level of detail required to provide adequate particulars sets out material facts that might also be regarded as evidence. Furthermore, pleadings motions should not be approached in an overly technical manner. Generally speaking, a party should be at liberty to craft a pleading in the manner it chooses providing the rules of pleading are not violently offended and there is no prejudice to the other side. … 16 The answer to acceptable pleading may often be found by revisiting first principles. Our rules of pleading are intended to define and limit the issues in order to promote fairness, judicial economy and exposition of the truth. This must be done so that the court understands the dispute and the parties have fair notice of the case to be met and the remedies to be sought. Pleadings are important because they are the foundational documents on which the case rests and will shape the scope of relevance for both discovery and trial. It must be remembered however that the question for today is not whether similar fact evidence will be admitted at trial but whether or not the allegations appearing above should be added to the statement of claim. [30] I agree that the Court should follow on first principles and avoid an overly technical approach when determining whether to strike pleadings. Application to the Pleading [31] I have decided to read these pleadings generously and not strike for the sake of some drafting deficiencies. The following is the decision concerning the attacked pleading. [32] The parties are described in paragraphs 3 – 33. While some of the descriptions are imprecise, there is nothing in those paragraphs which would cause the Court to take the step of striking those pleadings. [33] From paragraphs 34 – 103, the plaintiffs provide a lengthy background to the claim. These paragraphs set forth the relationship between the defendants and the plaintiffs as well as the relevance of Strum Island and the Lodge at Strum Island. In summary, the plaintiffs allege that the defendants have been extracting money from them for the defendants’ benefit and to their detriment. These funds are being used to support and provide for the expenses to run the Lodge at Strum Island, which the plaintiffs say is being used for the personal benefit of some of the defendants and not being run as it was intended. While some of this background seems superfluous and does not advance an understand of the causes of action and facts underlying those causes of action, they do not require the court to strike the paragraphs. [34] Paragraphs 51-82, of the Statement of Claim set forth an alleged history between some of the defendants and the plaintiffs, including prior investments and business ventures and related issues. It is unclear how this history is relevant to the proceeding, other than as a possible explanation of how the plaintiffs came to be involved in the venture at Strum Island, and of where their money came from ( ie. the money that was infused into the Strum Island venture). The plaintiffs agreed in oral submissions that paragraphs 51-65 could be struck. Given this concession, and because these paragraphs contain unnecessary background information, I will strike these paragraphs. [35] At para 69, the plaintiffs introduce a project called “Hunt’s Point”, which they say is relevant “To better explain and clarify the Plaintiffs pleading of the material facts relevant to The Lodge at Strum Island...”. It is hard to understand why evidence about all these various ventures and investments is required in these pleadings. There is a single connection made between the past ventures and investments and the current situation, in paragraphs 73 and 74: 73. At all such times during which the Plaintiffs were expressing concern to Kern over his requests for more and more funds, he continuously threatened them that if they did not supply the funds which he was seeking, the Projects, or at least some of the Projects, would fail, and the Plaintiffs would lose all of their funds which had been invested in them. 74. It was this method by which Kern was continuously able to unfairly extract monies from the Plaintiffs, with the net effect of exposing them to injury, loss and damages, the claims for which on behalf of the Plaintiffs will be more fully set out below. … 81. Though each of the Projects was discrete, the common denominator in, and promoter of, all of them was Kern; and Kern commingled the funding for all of them such that the Plaintiffs never really knew where they stood financially with respect to any such Project. [36] Given this, albeit tenuous, connection in the pleadings, I will not strike the remaining paragraphs 66 – 82, although I do question why it is necessary to describe in such detail all of the prior unrelated ventures. It does not however rise to the level that I will strike the paragraphs. There seems to be some tangential reason for these paragraphs to be included. [37] Paragraphs 104–157 ostensibly set forth material facts concerning the incorporation, governance, and management of the corporate defendant, Novacation, going to the shareholder oppression claims. These claims could have been pled in a more succinct manner. However, I am not going to police counsel’s verbiage. I do not consider that to be my role. While it takes some time and effort to get through these pleadings, once the task is complete, the reader is aware of the causes of action being advanced and the defendants should know the claims they are being asked to meet. The length of a pleading, on its own, is not a reason to strike. It may mean the pleading is not an example of best practice, that it lacks brevity, or that it is not easily analyzed, but it does not rise to the level of a pleading that must be struck. [38] Paragraph 151 is an example of a passage where the line between material facts and evidence is perilously close to being crossed and, in addition, hyperbole is present. 151. Additionally, as part of Kearn’s dunning process with respect to more and more money from the Plaintiffs for The Lodge at Strum Island (and later for Novacation), Kern began to hold the Forfeiture of Shares terms and conditions of Article 4.5 (a) of the Articles over the Plaintiffs head as a form of Damoclean Sword. [39] I will reluctantly leave this pleading intact. There is reference to alleged actions with regard to forfeiture of shares which could be characterized as part of the oppression claim. [40] Paragraphs 158-174 include allegations about alleged ongoing personal use of Strum Island by some of the defendants, to the financial detriment of the plaintiffs. In addition, there are allegations about mismanagement of the venture and resulting damage to the plaintiffs. These paragraphs do not offend the rules of pleadings which would call for this Court’s intervention to strike them. [41] Paragraphs 175–183 discuss an alleged move by the corporate defendant, Novacation, into cannabis production. This may prove to be relevant background with regard to shareholder oppression. [42] Paragraphs 184–191 refer to unrelated litigation outside this jurisdiction. These paragraphs also allege other acts unrelated to the claims being advanced in this proceeding. It is not explained why these paragraphs are in the Statement of Claim. They do not allege a cause of action here in Nova Scotia, and amount to a circuitous and collateral attack on the character of some of the defendants. These paragraphs should be struck. [43] Paragraphs 192–200 may be repetitive as they contain a summary of the allegations and claims being advanced, but I would not strike them on this basis alone. [44] The rest of the Statement of Claim (paragraphs 201–210) sets forth allegations about calls on the plaintiffs for ongoing cash injections into an alleged failing real estate venture for the benefit of the defendants and to the detriment of the plaintiffs. There are sections of the claim that are conclusory, but it is not to the extent that I would strike the claim. [45] The fact is the Statement of Claim is lengthy, verbose, repetitive, and poses some challenges to following the claims being advanced. However, I cannot conclude that the claim fails to alert the defendants as to the nature of the claims or the material facts they are based on. Counsel uses their professional judgement to determine what is sufficient for a pleadings purpose. The vast majority of this claim will not be struck. It is not my role to redraft counsel’s pleading if it puts the defendant on notice of what are the causes of action and what are the material facts those causes are rooted in. Conclusion [46] Perfection in pleading is not necessary. What is required is for a party to understand the material facts and causes of action claimed. While it may take some time to shift through this pleading, it does provide the basics required of a pleading. The Statement of Claim may not be perfect; it does not have to be. The Rule does not require brevity, succinctness or perfect clarity in drafting. [47] If the parties cannot agree on costs, I will receive written submissions within 30 days of the release of this decision. Brothers, J.