In this case, the Ontario Court of Appeal considered a complicated pleadings issue. A corporation and an individual jointly defended an action; the corporation also counter-claimed. When the corporation became insolvent, it failed to pursue its defence. Its defence was struck out, and a creditor assigned the counterclaim to the individual, who obtained an order to continue the counterclaim. Is the individual permitted to amend his pleadings to make them consistent with the counterclaim? The court unanimously dismissed the appeal, stating that to allow the amendments would be an abuse of process.
Steinberg, a former employee of Ellis Entertainment Corporation, began a wrongful dismissal action against the corporation and against Ellis, its CEO, personally. The corporation and Ellis jointly defended the action, stating in their statement of defence that Steinberg voluntarily resigned from his employment with the corporation or, alternatively, that Steinberg had engaged in serious misconduct that justified termination of his employment for cause. When the corporation become insolvent, its first-ranking secured creditor acquired the counterclaim, and in turn, assigned it to Ellis. Steinberg obtained an order striking the corporation’s defence, and consequently, the corporation was deemed to have admitted the allegations in the statement of claim, including that Steinberg was wrongfully dismissed. The corporation's counterclaim did not contain any allegations specific to it, but rather recited a number of allegations of misconduct by Steinberg during his employment with the corporation. These allegations were inconsistent with and contrary to the corporation's deemed admissions.
Ellis argued that the deemed admissions of the corporation had no impact on the legal viability of the counterclaim because the corporation lost all of its rights and interests in the counterclaim when the secured creditor had acquired its assets; by the time the corporation's statement of defence was struck out, the corporation no longer had the right to advance that counterclaim since Ellis had acquired it personally by assignment. However, Gillese JA stated that the effect of the assignment was to give Ellis the right to pursue the counterclaim on behalf of the corporation, due to which Ellis could not have a better claim than the Corporation.
In response to Ellis's argument that Steinberg's appeal constituted a collateral attack on the order to continue, Gillese JA wrote that the striking out of its statement of defence meant that the Corporation could not succeed in establishing the claims in the counterclaim. Because of this, the amendments that Ellis sought to make were not tenable at law, and as a result, the order of Hainey J had not allowed a collateral attack.
Bhuvana Sankaranarayanan
*
No comments:
Post a Comment