The Pleading of Ulterior Motive

 In Commercial Litigation

In the recent decision of Huachangda Canada Holdings Inc. v. Solcz Group Inc. (2019 ONCA 649), the Court of Appeal addressed when a defendant may plead or allege that a plaintiff has an ulterior motive for bringing the claim. In its decision, the Court of Appeal clarified that there is no absolute rule against alleging ulterior motive in a pleading, and pleadings containing allegations of ulterior motive may be permitted certain factual circumstances.

Background

Huachangda involved claims for alleged breaches of representations and warranties arising out of a share purchase agreement. The defendant/appellant, Solcz Group Inc. (“SGI”), an auto parts manufacturer, was the vendor and the plaintiff/respondent, Huachangda Canada Holdings Inc. (“HCH”), was the purchaser.

The Pleadings Issue

At issue in this litigation were two paragraphs of SGI’s Statement of Defence, which alleged that the HCH’s motive in bringing the claim was not “to recoup genuine damages for genuine wrongs”, but rather to obtain an after-the-fact reduction in the purchase price because of alleged financial and liquidity issues. HCH brought a motion to strike the two offending paragraphs under Rule 25.11.

The motion judge found the majority of the two paragraphs were improper on the basis that they plead ulterior motive, which was irrelevant to the causes of action asserted in HCH’s Statement of Claim, and unrelated to causation of the alleged damages or the alleged liquidity problems. The motion judge concluded that the two paragraphs were frivolous and vexatious under Rule 25.11, and struck out portions of them; without leave to amend.

The Appeal

SGI appealed, arguing that there is no general rule that any pleading touching on motive was irredeemably improper. The Court of Appeal dismissed this argument, with the Court noting that it did not read the motion judge’s decision as advancing that proposition. Instead, the Court of Appeal clarified that the trial judge had found that the plea of ulterior motive in that case was improper because it was irrelevant. The Court of Appeal considered this issue and found that the motion judge had applied the legal principles correctly, noting that a plea of ulterior motive, improper intent, or malice in bringing an action may be permitted in some circumstances, namely where the plea is an essential part of a cause of action or defence.

The appellants further argued that the improper paragraphs should not have been struck out as they were relevant to the plaintiff’s credibility on a material fact, namely the defendant’s allegation that the plaintiff suffered from “buyer’s remorse.” The Court of Appeal also rejected that argument, noting that credibility is an issue in almost every action and therefore a finding that pleadings of improper motive were relevant to determinations of credibility at large would mean that improper motive could be plead in almost every case, which would be inconsistent with past jurisprudence.

Ultimately, the Court agreed with the motion judge’s determination and dismissed the appeal. The Court of Appeal noted that, generally, allegations regarding a plaintiff’s personal reasons or motives in bringing an action, however improper, do not in themselves provide a defence to the action and are therefore irrelevant. That being said, the Court of Appeal also confirmed that a pleading of ulterior motive in bringing an action may be permitted in some circumstances, such as where the plea is an essential part of a cause of action or defence, or where it is otherwise relevant.

Takeaways

This decision is noteworthy in that the Court of Appeal confirms that the pleading of allegations of ulterior motive in bringing an action may be permitted in some circumstances. In doing so, the Court of Appeal provided important commentary about when pleadings of ulterior motive are permitted and when they should be struck under Rule 25.11.

This decision will be useful to counsel when determining whether a Statement of Defence should or should not include motive allegations, and assist parties in avoiding unnecessary motions to strike.

This blog post was written by Alexander Bissonnette, a member of the Commercial Litigation team.  He can be reached at 613-369-0358 or at Alexander.Bissonnette@mannlawyers.com.

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