



COURT OF APPEAL FOR ONTARIO

CITATION: Huachangda Canada Holdings Inc. v. Solcz Group
    Inc.,

2019 ONCA 649

DATE: 20190808

DOCKET: C66420

Hoy A.C.J.O.,
    Trotter and Jamal JJ.A.

BETWEEN

Huachangda
    Canada Holdings Inc.
,
Winvalco Limited,

Valiant Holdings GmbH
and
TMS Turnkey Manufacturing Solutions GmbH

Plaintiffs (
Respondents
)

and

Solcz Group Inc.

Defendant (
Appellant
)

and

Solcz Group Inc.

Plaintiff by Counterclaim (Appellant)

and

Huachangda Canada
    Holdings Inc., Shanghai Xianxing Intelligent Technology LLP, and Tony Sauro

Defendants by Counterclaim (Respondents)

Alan Merskey and Stephen Taylor, for the appellant

David Foulds and Wendy Sun, for the respondents

Heard: July 19, 2019

On appeal from the order of Justice Michael A. Penny of
    the Superior Court of Justice, dated December 10, 2018.

REASONS FOR
    DECISION

Introduction

[1]

May a defendant plead in a statement of defence that the plaintiff
    has an ulterior motive in bringing an action, if the plaintiffs motive is not
    otherwise an element of any cause of action or defence? That is the issue
    raised in this appeal.

[2]

The motion judge struck out,
    without leave to amend, two paragraphs in the appellants statement of defence because
    they pleaded that the respondents ulterior motive in bringing the action was to
    seek an adjustment of the purchase price under a share purchase agreement, rather
    than to seek genuine damages for genuine wrongs. The motion judge found that the
    paragraphs were irrelevant to the causes of action pleaded and therefore
    frivolous and vexatious under r. 25.11(b) of the
Rules of Civil
    Procedure
, R.R.O. 1990, Reg. 194.

The appellant now appeals to this court.

[3]

We agree with the motion judges determination.
    Generally, allegations regarding a
plaintiffs personal reasons or
    motives in bringing an action, however improper, do not in themselves provide a
    defence to the action and are therefore irrelevant. A court will not inquire
    into a litigants private motives in bringing an action. However, a plea of
    ulterior motive in bringing an action may be permitted where the plea is an
    essential part of a cause of action or defence, or where it is otherwise
    relevant, such as where it bears on a claim of abuse of process.

[4]

In this case, the respondents alleged ulterior motive was not an
    essential part of any cause of action or defence, nor was it otherwise relevant.
    As such, the plea was properly struck out under r. 25.11(b).

The pleadings

[5]

The respondents assert claims for alleged breaches of representations
    and warranties and fraudulent conduct arising out of a share purchase agreement.

[6]

The appellant, Solcz Group Inc. (SGI), an auto parts manufacturer, was
    the vendor. The respondent, Huachangda Canada Holdings Inc. (HCH), was the
    purchaser.

[7]

The respondents amended statement of claim pleads that under the share
    purchase agreement (SPA), HCH acquired a European auto parts manufacturing
    business from SGI, by purchasing all the issued and outstanding shares of SGI subsidiaries
    Valiant Corporation and the respondent Winvalco Limited. HCH thereby became the
    indirect owner of several Valiant subsidiaries, including the respondents
    Valiant Holdings GmbH and TMS Turnkey Manufacturing Solutions GmbH. The total value
    of the transaction, which closed in March 2017, was $410,000,000.

[8]

The amended claim pleads that SGI breached numerous representations and
    warranties in the SPA by failing to disclose or by concealing serious issues
    with significant contracts that TMS had with Porsche and Volvo, thereby causing
    substantial losses to Valiant. As a result, HCH claims that it overpaid SGI for
    the shares of Valiant and Winvalco and seeks a purchase price adjustment. It
    also pleads that the losses suffered caused a liquidity crisis at TMS, which
    placed TMS on the brink of insolvency and thereby injured HCH and Valiant.

[9]

The appellants statement of defence denies these allegations and claims
    that any losses incurred by the respondents were caused by their own financial mismanagement
    and by the actions of HCHs principal shareholder, Huachangda Intelligent
    Equipment Group Inc. (HCD), which is not a party to the action.

[10]

The
    statement of defence also pleads that the respondents motive in suing the
    appellant was not to recoup genuine damages for genuine wrongs, but rather to
    obtain an after-the-fact reduction in the purchase price because of HCHs
    financial and liquidity issues. Paragraphs 8 and 37 of the statement of
    defence, which are the subject of the present appeal, read as follows:

8        Subsequently, the Plaintiffs commenced these
    proceedings raising allegations with respect to the very same disclosure and
    due diligence process under the SPA.
Ultimately, the claims advanced by the
    Plaintiffs in this proceeding are not an effort to recoup genuine damages for
    genuine wrongs, but rather an effort to seek an after the fact reduction to the
    agreed upon purchase price established under the SPA for the benefit of itself
    and its direct and indirect shareholders, and in response to financial and
    liquidity issues recently and currently experienced by HCH and those
    shareholders
.

[]

37
HCHs recovery efforts
    resulted, in part, from direct or indirect pressure placed on HCH to recoup
    portions of the Purchase Price in order to help address financial difficulties
    caused by extensive management, regulatory, financial, and liquidity issues
    experienced by HCD in or around this time. Among other things, HCD was involved
    in disputes with its former Chairman of the Board, President, and controlling
    shareholder, Mr. Hua Yan, including with respect to alleged debts in the
    approximate amount of CNY 3,000,000,000 and Mr. Yans ultimate resignation, and
    faced multi-month suspensions in the trading of its stocks in or around both
    April 2017 and October 2017
. [Emphasis added.]

The motion judges decision

[11]

The
    motion judge struck out the underlined portions of the above two paragraphs, without
    leave to amend. He found the majority of paragraph 8 to be improper because
    [i]t pleads ulterior motive, which is irrelevant to the causes of action
    asserted in the statement of claim; it was therefore frivolous and vexatious
    within the meaning of rule 25.11: para. 13. He similarly read paragraph 37 as
    a pleading of motive underlying the plaintiffs issuance of the statement of
    claim and not, on its face, a pleading that relates to causation of the
    damages or the alleged liquidity problems suffered by Valiant and Turnkey:
    para. 16.

[12]

However,
    the motion judge refused to strike out other paragraphs from the statement of
    defence, finding that they addressed the issue of causation  that any alleged
    losses suffered by the respondents, and the alleged liquidity crisis, were
    caused by the respondents mismanagement and the financial and other demands of
    the respondents shareholder: para. 15.

[13]

Finally,
    the motion judge struck out a counterclaim against the respondent Mr. Tony
    Sauro, the global chief financial officer of the Valiant group of companies and
    several of its subsidiaries, on the basis that he was not a necessary and
    proper party to the counterclaim: paras. 18-26. This ruling is not challenged
    on appeal.

Issues on appeal

[14]

The
    appellant raises two issues on appeal:

1.

Did the
    motion err in striking out paragraphs 8 and 37 of the statement of defence as
    improper pleas of ulterior motive?

2.

Did
    the motion judge err in refusing leave to amend?

Analysis

1.

Did
    the motion judge err in striking out paragraphs 8 and 37 of the statement of
    defence as improper pleas of ulterior motive?

[15]

Rule
    25.11(b) provides in relevant part that the court may strike out or expunge all
    or part of a pleading, with or without leave to amend, on the ground that the
    pleading is scandalous, frivolous or vexatious. A fact that is relevant to a
    cause of action cannot be scandalous, frivolous or vexatious. On the other
    hand, a pleading that raises irrelevant or superfluous allegations that cannot
    affect the outcome of an action is scandalous, frivolous or vexatious, and
    should be struck out: see
F.(M.)
v.
Dr. Sutherland
(2000), 188
    D.L.R. (4th) 296 (Ont. C.A.), at para. 67;
Carney Timber Company, Inc
.
    v.
Pabedinskas
, 2008 CanLII 63163 (Ont. S.C.), at para. 16. The courts
    will not allow any fact to be alleged which is wholly immaterial and can have
    no effect in the result:
Duryea v. Kaufman
(1910), 21 O.L.R. 161
    (H.C.), at p. 168, cited in
F.(M.)
v.
Dr. Sutherland
, at para.
    71.

[16]

The
    appellant asserts that the motion judge erred in applying these principles to
    strike out paragraphs 8 and 37 under r. 25.11(b), for three reasons.

[17]

First,
    the appellant faults the motion judge for citing no authority and claims that [t]here
    is no general rule that any pleading touching on motive is necessarily and
    irredeemably bad.

[18]

We
    do not accept the appellants submission. We do not read the motion judge as
    finding that
any
plea of ulterior motive is
necessarily
improper. Rather, he found that the plea of ulterior motive in this case is
    improper because it is irrelevant to the causes of action asserted in the
    statement of claim: para. 13.

[19]

The
    motion judges decision is amply supported by authority.

[20]

A
    plaintiffs motive in bringing an action, however allegedly improper, is not in
    itself a defence to the action:
E.O.E. Group Inc. v. Konica Minolta
    Business Solutions (Canada) Ltd.
, 2012 ONSC 197 (Master), at para. 7. A
    pleading with respect to the plaintiffs motive in bringing an action is
    generally improper
:

BMO Nesbitt Burns Inc. v. Shortt
, 2013 ONSC 1873
    (Master), at para. 18. As noted in
Davis v. City of Toronto
,
    1942 CarswellOnt 170 (H.C.), at para. 1
, [a]
litigants private motives will not be enquired into.

[21]

However,
    a plea of ulterior motive, improper intent, or malice in bringing an action may
    be permitted where the plea is an essential part of a cause of action or
    defence: see e.g.,
Refco Futures (Canada) Ltd. v. Keuroghlian
, [2002]
    O.J. No. 2981 (S.C.), at para. 38;
Welch, Anderson & Company v. Roberts
,
    [1945] O.J. No. 358 (H.C.), at para. 2. Such a pleading may also be permitted
    if it is otherwise relevant, such as if it bears on a claim of abuse of process:
    see e.g.,
Marineland
    of Canada v. Niagara Action for Animals
, 2004 CanLII 30880 (Ont. S.C.), at para.
    29
.

[22]

Here,
    the motion judge applied these principles correctly. He found that paragraphs 8
    and 37 of the defence plead the respondents improper motive in bringing the
    action. As noted, those paragraphs allege that the respondents were not suing
    in an effort to recoup genuine damages for genuine wrongs, but rather to
    obtain an after-the-fact reduction in the purchase price in response to their
    own financial and liquidity issues. But whether this allegation is true has no
    bearing on the outcome of this action: either the respondents have a valid claim
    under the share purchase agreement, or they do not. The improper motive alleged
    is therefore irrelevant, such that those paragraphs were properly struck out
    under r. 25.11(b).

[23]

Second,
    the appellant asserts that the motion judge should have refused to strike out
    paragraphs 8 and 37 because they are relevant to the respondents credibility regarding
    a material fact, namely, the appellants claim that the respondents suffered
    from buyers remorse.

[24]

We
    do not accept the appellants submission. Credibility is an issue in almost
    every action. If improper motive can be said to be relevant to credibility writ
    large, without being an element of a cause of action or defence, or without
    otherwise being relevant to an issue in the action, then an ulterior motive would
    be relevant and could be pleaded in almost every case. That would be
    inconsistent with the authorities precluding, as a general matter, a plea of
    improper motive in bringing an action.

[25]

Moreover,
    buyers remorse is a factual conclusion that the court may reach after
    hearing all the evidence. It is not itself part of a cause of action or
    defence.

[26]

Third,
    the appellant asserts that paragraph 37 is relevant to the issue of causation:
    whether the respondents alleged losses were caused by its own mismanagement
    and the internal financial difficulties of HCH and its shareholder, HCD, rather
    than by any misrepresentations under the share purchase agreement.

[27]

We
    do not accept the appellants submission. On its face, paragraph 37 does not address
    the cause of the respondents alleged losses, but rather addresses the
    respondents alleged ulterior motive in bringing this action. As we have
    already found, that is an irrelevant plea. As such, it was properly struck out.

2.

Did the
    motion judge err in refusing leave to amend?

[28]

Lastly,
    the appellant asserts that the motion judge should have granted leave to amend
    paragraphs 8 and 37. The appellant says that leave to amend should be denied
    only in the clearest of cases, and that the motion judge erred in refusing leave
    to amend without explanation. The appellant cites this courts decision in
Tran
    v. University of Western Ontario
, 2015 ONCA 295, at paras. 26-27, to
    contend that a party should be allowed to remedy its deficient pleadings,
    particularly where there have been no prior amendments.

[29]

We
    do not accept the appellants submission.

[30]

A
    motion judges decision as to whether to grant leave to amend is discretionary
    and entitled to deference on appeal, absent palpable and overriding error of
    fact or error of law:
Conway v. Law Society of Upper Canada
, 2016 ONCA
    72, 395 D.L.R. (4th) 100, at para. 16. An appellate court should interfere only
    if the motion judge erred in principle or acted unreasonably in the exercise of
    their discretion:
Grigonis v. Toronto Boardsailing Club
, 2010 ONCA
    651, at para. 5.

[31]

Here,
    the motion judge refused leave to amend because he concluded that the impugned
    paragraphs of the appellants defence were scandalous, frivolous or vexatious
    and disclosed no reasonable defence. In such circumstances, a court is not
    required to grant leave to amend:
1588444 Ontario Ltd. v. State Farm Fire
    and Casualty Company
, 2017 ONCA 42, 135 O.R. (3d) 681, at para. 25.

[32]

Nor
    does this courts decision in
Tran
assist the appellant. In
Tran
,
    this court concluded that a statement of claim in which claims had been struck
    out did plead certain facts capable of supporting those claims. Because no
    prior amendments had been made, the court found that it was appropriate to
    grant leave to amend. Here, by contrast, the appellants plea of ulterior
    motive is irrelevant and improper, such that it cannot be cured by amendment.

[33]

As
    such, the motion judge did not err in law in refusing leave to amend.

Disposition

[34]

For
    these reasons, the appeal is dismissed, with costs to the respondents in the
    amount of $15,000, inclusive of HST and disbursements.

Alexandra Hoy A.C.J.O.

G.T. Trotter J.A.

M.
    Jamal J.A.


