Don’t Forget Written Advocacy: Civil Actions Are Framed By The Pleadings

Civil actions are framed by the pleadings. This trite statement of law is usually resolved at the interlocutory stage by a motion brought under Rule 21 and/or 25.10 of the Ontario Rules of Civil Procedure. Today’s decision by the Court of Appeal for Ontario in Link v. Venture Steel Inc., 2010 ONCA 144 considers the issue of pleading inadequacy following a successful trial judgment and reinforces the importance of written advocacy in ensuring a client’s claim withstands an attack on pleading sufficiency:

[35] It is well accepted that the parties to an action are entitled to have a resolution of their differences based on the pleadings. The trial judge cannot make a finding of liability and award damages against a defendant on a basis not pleaded in the statement of claim because it deprives the defendant of the opportunity to address that issue: Kalkinis (Litigation guardian of) v. Allstate Insurance Co. of Canada (1998), 41 O.R. (3d) 528 (C.A.), leave to appeal to S.C.C. refused, [1999] S.C.C.A. No. 253.

[36] I would not interfere with the trial judge’s award in relation to Link’s common shares on the basis of the inadequacy of Link’s pleadings. In my view, the basis of liability on which the trial judge made the award can be supported by the pleadings, albeit with a generous and liberal interpretation of those pleadings. In this case, a generous and liberal interpretation of the pleadings is appropriate. Venture conducted the trial with the evident understanding that Link was claiming an amount equal to nine per cent of the sale proceeds for his common shares. Venture was not misled and no unfairness resulted from Link’s general pleadings.

[42] Read generously, the pleadings include the two critical matters that underlie Link’s claim that he was entitled to an amount equal to nine per cent of the sale proceeds. The first is that Link was still a shareholder on April 30, 2006. In para. 15 of the amended statement of claim, Link pleaded that the defendants sought to deprive him of the rightful value of his shareholdings under the Shareholders’ Agreement, albeit at the time he was referring to the value pursuant to s. 3.6(2) of that agreement. In para. 16, Link asserted that he was denied the production of the financial statements “as [a] shareholder”.

[44] Link’s claim for an amount equal to nine per cent of the proceeds from the sale of Venture also depended on Venture being liable pursuant to s. 3.4 of the Shareholders’ Agreement. Venture argues that this was an entirely new unpleaded claim and that the pleadings could not support a finding of liability on this basis.

[45] I disagree. The second critical matter included in the pleadings is that Link was claiming the value of his shares pursuant to the Shareholders’ Agreement. This claim is made in para. 31 of the amended statement of claim. As I said above, Link’s pleadings are sufficient to include a claim that he was still a shareholder at the time of the sale and that his shares had not been acquired. Although the pleadings do not make specific reference to the sale or to s. 3.4 of the Shareholders’ Agreement, the pleadings, in my view, were sufficient in general terms to put Venture on notice that Link was asserting a claim for the full value of his shares under the Shareholders’ Agreement.

[46] The question then becomes whether Venture was misled or prejudiced as a result of what were very general pleadings. Put another way, did Venture know that Link was pursuing a claim to entitlement to an amount equal to a portion of the sale proceeds?

[47] An examination of the pre-trial proceedings and the trial record indicates there can be no question that Venture was fully aware that Link was pursuing a claim based on the proceeds of the sale to Royal Laser.

[54] In these circumstances, I am satisfied that the claim as pleaded was sufficient and that no trial unfairness resulted from the way in which it was pleaded.

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