A-375-97

Her Majesty the Queen (Appellant) (Defendant)

v.

Andersen Consulting (Respondent) (Plaintiff)

Indexed as: Andersen Consultingv. Canada (C.A.)

Court of Appeal, Strayer, Denault (ex officio) and Létourneau JJ.A."Ottawa, October 16 and 27, 1997.

Practice " Pleadings " Amendments " Appeal from Motions Judge's refusal to allow amendments to statement of defence in so far as withdrawing admissions " Even if motion to amend pleadings involving withdrawal of admissions, motion under R. 420 proper " As amendment to pleading replaces earlier passage, no inconsistency contrary to R. 411 prohibition against inconsistent pleading " Practice in various Canadian jurisdictions reviewed " Flexible tests for withdrawal of admissions adopted " Requiring triable issue " Inadvertence, error, haste, lack of knowledge of facts, discovery of new facts, timeliness of motion to amend considered in deciding whether triable issue " Procedure to withdraw admissions should not be so stringent as to discourage proper admissions to detriment of litigants, administration of justice.

This was an appeal from the order of a Motions Judge refusing to allow amendments to the statement of defence in so far as they withdrew admissions. The Motions Judge held that an application for leave to withdraw admissions was required separate from, and in addition to, the appellant's motion to amend its pleadings. He also concluded that any amendment to a pleading that withdraws an admission is barred by Rule 411, which prohibits a party from making an allegation of fact inconsistent with a previous pleading. The issue was whether the procedure and the test applicable to the withdrawal of admissions differ from those usually applicable to mere amendments of pleadings.

Held, the appeal should be allowed.

A motion to amend pleadings, even if it involves some changes to the pleadings which might be construed as a withdrawal of admissions, is still a proper motion to amend pleadings pursuant to Rule 420. If there is any legitimate reason to object to such a withdrawal, it may be addressed in the same proceeding where other types of amendments are considered.

Where an amendment to a pleading is sought and obtained, the new passage replaces the earlier passage and, that being so, no inconsistency is created between two operative pleadings.

Different tests have been applied in different jurisdictions across Canada with respect to withdrawal of admissions. In Ontario, a party requesting leave to withdraw an admission is required to satisfy three conditions: (1) the proposed amendment must raise a triable issue; (2) the admission must have been inadvertent, or resulted from wrong instructions; and (3) the withdrawal must not result in any prejudice that could not be compensated for in costs. British Columbia courts do not require inadvertence, only that there be a triable issue which ought to be tried in the interests of justice. Inadvertence, error, hastiness, lack of knowledge of the facts, discovery of new facts and timeliness of the motion to amend are considered in deciding whether or not there is a triable issue. The latter approach gives the Court flexibility. If the courts do not permit admissions to be withdrawn when new facts are brought to light, parties will be discouraged from making what seemed at the time to be proper admissions, to the disadvantage of litigants and the administration of justice. The Court must ensure that the procedure to withdraw admissions is not so complex and stringent that virtually no admissions will be made.

The proposed amendments related to a triable issue and should be decided at trial, and for the purpose of determining the real questions in controversy between the parties, it is in the interests of justice that the amendments be authorized. Allowing the amendments would not result in prejudice or injustice to the respondent.

statutes and regulations judicially considered

Federal Court Rules, C.R.C., c. 663, RR. 411, 420.

Income Tax Act, S.C. 1970-71-72, c. 63.

Rules of Civil Procedure, O. Reg. 560/84, R. 51.05.

cases judicially considered

distinguished:

Canderel Ltd. v. Canada, [1994] 1 F.C. 3; [1993] 2 C.T.C. 213; (1993), 93 DTC 5357; 157 N.R. 380 (C.A.).

referred to:

Szelazek Investments Ltd. v. Orzech (1996), 44 C.P.C. (3d) 102 (Ont. C.A.); Antipas v. Coroneos (1988), 29 C.C.L.I. 161; 26 C.P.C. (2d) 63 (Ont. H.C.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1995), 25 O.R. (3d) 106; 41 C.P.C. (3d) 75 (Gen. Div.); National Utility Service (Canada) Ltd. v. Kenroc Tools Inc. (1995), 34 C.P.C. (3d) 362 (Ont. Gen. Div.); Norlympia Seafoods Ltd. et al. v. Dale & Co. Ltd. (1982), 114 D.L.R. (3d) 733; 41 B.C.L.R. 145 (B.C.C.A.); Abacus Cities Ltd. v. Port Moody (1981), 26 B.C.L.R. 381 (B.C.C.A.); Chavez v. Sundance Cruises Corp. (1993), 77 B.C.L.R. (2d) 328; 15 C.P.C. (3d) 305 (C.A.); La v. Le (1993), 78 B.C.L.R. (2d) 322; 25 B.C.A.C. 12; 43 W.A.C. 12 (C.A.).

APPEAL from the order of a Motions Judge denying amendments withdrawing admissions in a statement of defence (Andersen Consulting v. Canada, [1997] F.C.J. No. 478 (T.D.) (QL)). Appeal allowed.

counsel:

I. Whitehall, Q.C., D. F. Friesen, Q.C. and C. Moore for appellant.

T. G. Heintzman, Q.C. and Colin S. Baxter for respondent.

solicitors:

Deputy Attorney General of Canada for appellant.

McCarthy Tétrault, Ottawa, for respondent.

The following are the reasons for judgment rendered in English

By the Court: This is an appeal from a decision of a Motions Judge of the Trial Division [[1997] F.C.J. No. 478 (QL)] in which he refused to allow the appellant (defendant in the action) to make certain amendments to its statement of defence. The relevant parts of the order for purposes of this appeal are:

IT IS HEREBY ORDERED THAT the applicant is dismissed in relation to:

1. Paragraphs 9, 13, 33.1, 34.1, 34.2, 35, 35.4, 36, 38, 38.1, 39 and 40 of the proposed Amended Defence, insofar as those paragraphs withdraw admissions made in the Defence; and

2. Paragraphs 12.2, 25, 26, 29.3 and 38.2 of the proposed Amended Defence, insofar as those paragraphs allege a motive on the part of the Plaintiff or refer to the Plaintiff acting on advice of counsel.

. . .

IT IS FURTHER ORDERED THAT, in all other respects, the Defendant has leave to file the proposed Amended Defence, and counsel for the Defendant, in consultation with counsel for the Plaintiff, is invited to submit a revised Amended Defence that accords with this Order. On receipt by the Court of such an Amended Defence, together with advice from counsel for the Plaintiff that it effectively reflects this Order, an order will go.

No further order based on an agreement as contemplated by the above order was ever issued.

At the outset of the hearing, counsel for the appellant indicated to us that he was abandoning the appeal with respect to paragraph 2 of the impugned order dismissing the application in relation to paragraphs 12.2, 25, 26, 29.3 and 38.2 of the proposed amended defence. The hearing proceeded on paragraph 1 of the said order.

Basically, the appeal against the decision raises two issues: the procedure applicable to a defendant who wants to amend its statement of defence, especially when the amendment purports to withdraw an admission; and the test to be applied by the judge in allowing or refusing the amendments. The appellant's contention before us is that the learned Judge erred in law and improperly exercised his discretion in refusing the appellant the right to amend her defence. The respondent submits that the proposed amendments amount to withdrawals of admissions or can be so construed and, therefore, that the procedure and the test applicable in such case differ from those usually applicable to mere amendments of the pleadings. Consequently, he contends that the Motions Judge properly dismissed the appellant's motion.

It will be noted that although the learned Motions Judge stated that it was [at paragraph 6] "beyond doubt that the Defendant was seeking to withdraw admissions" he did not specifically find that any of the proposed amendments constituted a withdrawal of admissions. He appeared to leave it to counsel to identify which portions if any constituted such withdrawals. Counsel did not reach any such agreement and the appeal was brought before us on the assumption that the Motions Judge's strictures against withdrawal of admissions applied to all the paragraphs named in paragraph 1 of the order.

We would observe at the outset that in our view it is doubtful if any of the said paragraphs, with the possible exception of paragraph 9, ever did constitute admissions or a withdrawal of admissions. However, we understand that the argument proceeded before the learned Motions Judge on the basis that they all did. He decided that, by reason of various principles, no withdrawal of admissions could be allowed on the appellant's motion to amend her statement of defence. As the amendments referred to above were therefore considered by the parties to be disallowed on this basis that matter is not in issue before us and we must address the principles invoked by the Motions Judge.

In doing so we have had due regard for the deference that must be shown a motions judge acting in the exercise of a discretionary power. However, it is our duty to review the legal principles upon which he exercised his discretion.

The Motions Judge, in our view, wrongly held that an application for leave to withdraw admissions was required separate from, and in addition to, the appellant's motion to amend its pleadings which were said by the respondent to involve withdrawals of admissions. We can find no reason in logic or doctrine as to why such a separate motion should be required. A motion to amend pleadings, if it involves some changes to the pleadings which might be construed as a withdrawal of admissions, is still a proper motion to amend pleadings pursuant to Rule 420 [Federal Court Rules, C.R.C., c. 663]. If there is any legitimate reason to object to any such withdrawal it may be addressed in the same proceeding where other types of amendments are considered. The learned Motions Judge, however, felt himself constrained by the decision of this Court in Canderel Ltd. v. Canada where Décary J.A. stated¹ that an admission could be withdrawn with leave of the Court but that:

. . . we simply cannot find in this instance that leave was implicitly sought . . . .

It is clear that in that case there was an admission by the Minister of National Revenue, predating the litigation, that the taxpayer's expenditures had been on account of income. Subsequently his reply to the taxpayer's notice of appeal so pleaded. On the fifth day of the trial, his counsel sought to have that pleading amended to allege in the alternative that if the Court found it to be on capital account then the expenditures were still not deductible because of other provisions of the Income Tax Act [S.C. 1970-71-72, c. 63]. The Trial Judge refused to allow an amendment at that late date, and his decision was appealed to this Court. As pointed out by Décary J.A., even if the amendment were allowed it would not overcome the earlier admission. As he said:

Counsel recognized, and I quote: "The amendment cannot stand with the admission"².

Obviously, the amendment would not by its terms withdraw the admission and therefore Décary J.A. expressed the view that a request for leave to withdraw could not be implied.

That was not the situation in the present case, nor is it in any case where the alleged admission is part of the pleadings sought to be amended by an application brought under Rule 420.

We are also of the view that the Motions Judge erred in concluding that any amendment to a pleading that withdraws an admission is barred by Rule 411 which prohibits a party from making an allegation of fact inconsistent with a previous pleading. Where an amendment to a pleading is sought and obtained, the new passage replaces the earlier passage thus amended and consequently there is no inconsistency created between two operative pleadings. Hence, in the present case where the appellant sought to replace certain paragraphs, said by the respondent to contain admissions, by new paragraphs, no inconsistency within the meaning of Rule 411 would have been created by such amendments.

The respondent submitted that the learned Judge was right in dismissing the appellant's motion to amend the pleadings as she did not provide evidence in support of what the respondent construes as withdrawals of admissions.

By contrast, the respondent filed before the Motions Judge extensive material to oppose the amendments and support its contention that the amendments purport to withdraw admissions. Interestingly enough, the appellant relied upon the same material filed by the respondent to show that the proposed amendments were mere clarifications and precisions of their previous pleadings.

Different tests of varying stringency have been applied in different jurisdictions across Canada with respect to a withdrawal of admissions. At one end of the spectrum, the case law in Ontario, with respect to the interpretation of Rule 51.05 of the Rules of Civil Procedure, requires that the party requesting leave to withdraw an admission satisfy three conditions:

(1) that the proposed amendment raise a triable issue;

(2) that the admission was inadvertent or resulted from wrong instructions; and

(3) that the withdrawal would not result in any prejudice that could not be compensated for in costs.³

At the other end, the British Columbia courts have taken a more flexible approach and have not required as a condition essential to a withdrawal of an admission that the admission in the statement of defence be made inadvertently or hastily. Rather, they have adopted as a test that, in all the circumstances of the case, there be a triable issue which ought to be tried in the interests of justice and not be left to an admission of fact.⁴ Under such a test, inadvertence, error, hastiness, lack of knowledge of the facts, discovery of new facts, and timeliness of the motion to amend become factors to be taken into consideration in deciding whether or not the circumstances show that there is a triable issue which ought to be tried in the interests of justice.⁵

We prefer the approach taken by the courts in British Columbia which gives the Court seized with a motion to amend pleadings, including an amendment withdrawing or purporting to withdraw an admission, the needed flexibility to ensure that triable issues are tried in the interests of justice without injustice to the litigants.

The material filed by the respondent lies at the core of the debate between the parties and will have to be assessed by the Trial Judge at trial to determine the validity of the respondent's lawsuit. It would be most undesirable, in our view, to embark at this stage of the proceedings upon a mini-trial to determine whether the evidence allegedly required to be filed with the motion to amend supports or not the new amendments. We agree with Taylor J.A. in La v. Le "that if the courts do not permit admissions to be withdrawn when new facts are unexpectedly brought to light thereafter, parties will inevitably be discouraged from making what seem at the time to be proper admissions, to the considerable disadvantage of litigants and the administration of justice generally".⁶ We must ensure that the procedure to withdraw admissions is not made so complex and so stringent that virtually no admissions will be made by defendants.

Indeed, the desirable flexibility in matters of amendment to pleadings, including, in our view, the withdrawal of admissions, was stated by our colleague Décary J.A. in the following terms in the Canderel case:

. . . while it is impossible to enumerate all the factors that a judge must take into consideration in determining whether it is just, in a given case, to authorize an amendment, the general rule is that an amendment should be allowed at any stage of an action for the purpose of determining the real questions in controversy between the parties, provided, notably, that the allowance would not result in an injustice to the other party not capable of being compensated by an award of costs and that it would serve the interests of justice.⁷

Applying this test to the present case, there is, in our view, no doubt that the proposed amendments relate to a triable issue that should be decided at trial and that, for the purpose of determining the real questions in controversy between the parties, it is in the interests of justice that the amendments be authorized.

Furthermore, it is still early in the process and the discoveries are not yet completed, the respondent having amended substantially its statement of claim. Consequently, we see no prejudice or injustice resulting to the respondent in allowing the amendments. Indeed, no evidence of prejudice has been put before the Motion Judge or before us. The fact that the proposed amendments might make the case more difficult for a party to win is not the kind of prejudice that is in issue on motions to amend the pleadings.

For these reasons, the appeal should be allowed with costs and paragraphs 9, 13, 33.1, 34.1, 34.2, 35, 35.4, 36, 38, 38.1, 39 and 40 of the proposed amended defence should be allowed to be part of the appellant's pleadings.

¹ [1994] 1 F.C. 3 (C.A.), at p. 14.

² Id., at p. 13.

³ Szelazek Investments Ltd. v. Orzech (1996), 44 C.P.C. (3d) 102 (Ont. C.A.), approving Antipas v. Coroneos (1988), 29 C.C.L.I. 161 (Ont. H.C.). See also Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1995), 25 O.R. (3d) 106 (Gen. Div.), at p. 119; National Utility Service (Canada) Ltd. v. Kenroc Tools Inc. (1995), 34 C.P.C. (3d) 362 (Ont. Gen. Div.).

⁴ Norlympia Seafoods Ltd. et al. v. Dale & Co. Ltd. (1982), 114 D.L.R. (3d) 733 (B.C.C.A.). See also Abacus Cities Ltd. v. Port Moody (1981), 26 B.C.L.R. 381 (C.A.); Chavez v. Sundance Cruises Corp (1993), 77 B.C.L.R. (2d) 328 (C.A.).

⁵ Id., at p. 737.

⁶ (1993), 78 B.C.L.R. (2d) 322 (C.A.), at p. 324.

⁷ ;Canderel Ltd. v. Canada, [1994] 1 F.C. 3, at p. 10.