Date: 19991222
Docket: T-2311-97
BETWEEN:
GORDON F. DIXON, BERNARD PRINGLE
and ELIZABETH PRINGLE
Plaintiffs
(Respondents)
- and -
HER MAJESTY THE QUEEN IN RIGHT OF CANADA,
THE MINISTER OF NATIONAL REVENUE, REVENUE CANADA
and THE ROYAL CANADIAN MOUNTED POLICE
Defendants
(Applicants)
REASONS FOR ORDER
GIBSON J.
[1] These reasons arise out of an application on behalf of the defendants for an Order striking out the plaintiffs' Statement of Claim and for costs of the motion. The application was heard at Calgary, Alberta on the 13th of December, 1999.
[2] The defendants rely on paragraphs 221 (1) (a) and (f) of the Federal Court Rules, (1998)1. The relevant portions of subrule 221 (1) read as follows:
221. (1) On motion, the Court may, at any time, order that a pleading, or anything contained therein, be struck out, with or without leave to amend, on the ground that it
(a) discloses no reasonable cause of action or defence, as the case may be,
...
(f) is otherwise an abuse of the process of the Court,
and may order the action be dismissed or judgment entered accordingly.
221. (1) À tout moment, la Cour peut, sur requête, ordonner la radiation de tout ou partie d'un acte de procédure, avec ou sans autorisation de le modifier, au motif, selon le cas :
a) qu'il ne révèle aucune cause d'action ou de défense valable;
...
f) qu'il constitue autrement un abus de procedure.
Elle peut aussi ordonner que l'action soit rejetée ou qu'un jugement soit enregistré en conséquence.
BACKGROUND
[3] The plaintiffs are residents of Canada and substantial shareholders in Highwood Distillers Ltd. ("Highwood").
[4] The defendants undertook investigations into an alleged elaborate criminal scheme involving the illegal sale of alcoholic spirits, including the illegal sale of alcoholic spirits manufactured by Highwood. The Statement of Claim alleges that the defendants:
| ...negligently failed to stop the unlawful and illegal acts of [certain persons] then being perpetrated against Highwood, which acts foreseeably could and did result in loss of property and revenue to Highwood and which foreseeably could and did result in taxes, duties and penalties and other liabilities being levied and charged against Highwood...which could and did severely and negatively impact the operational and financial ability of Highwood to continue its business and which did result in a serious loss of reputation and financial standing and liability of Highwood. |
[5] The Statement of Claim continues:
| 16. As a result of the failure of the Defendants and each one of them to carry out their statutory and other duties and as a direct and proximate result of the individual and collective negligent acts or omissions of the Defendants and each one of them, Highwood sustained losses which include: |
| (a) Loss of inventory; |
| (b) Loss of business opportunity; |
| (c) Loss of reputation; |
| (d) Loss of financial viability; |
| (e) Loss of operational capability; |
| (f) Loss of personnel and directors; and |
| (g) Increased and additional liabilities under the Excise Tax Act, Excise Act, Income Tax Act, and other federal and provincial statutes. |
| 17. These losses sustained by Highwood directly caused the price of shares in Highwood to drop substantially, as a direct result of which the Plaintiffs...sustained losses.... |
[6] Highwood brought an action against Her Majesty the Queen, the Minister of National Revenue and The Royal Canadian Mounted Police based upon substantially the same allegations.2
[7] The test in Canada governing striking of pleadings is succinctly stated by Madame Justice Wilson, writing for the Supreme Court of Canada, in Hunt v. Carey Canada Inc.3 Madame Justice Wilson wrote at page 980:
| assuming that the facts as stated in the statement of claim can be proved, is it 'plain and obvious' that the plaintiff's statement of claim discloses no reasonable cause of action? |
[8] Counsel for the plaintiffs referred me to Doe v. Metropolitan Toronto (Municipality) Commissioners of Police4 where Mr. Justice Henry as he then was, on a motion such as this, wrote at page 398:
| The test to be applied on a motion of this type are [sic]: |
| (a) All allegations of fact, unless patently ridiculous or incapable of proof, must be accepted as proven. |
| (b) The moving parties, in order to succeed, must show that it is plain, obvious and beyond doubt that the plaintiff could not succeed. |
| (c) The novelty of the cause of action will not mitigate against the plaintiff: |
| ... |
| (d) a. further principle recently stated by the Supreme Court of Canada is that the Court is obliged to read the statement of claim as generously as possible and to accommodate any inadequacies in the form of the allegations which are merely the result of drafting deficiencies:... |
| [citations omitted] |
[9] No equivalent statement of a generalized test for striking as an abuse of process was cited before me.
ANALYSIS
[10] In Hercules Managements Ltd. v. Ernst & Young,5 Mr. Justice LaForest, for the Court, wrote at paragraph 59:
| The rule in Foss vs. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporation and that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself (through management) or by way of a derivative action. The legal rationale behind the rule was eloquently set out by the English Court of Appeal in Prudential Assurance Co. vs. Newman Industries Ltd. (No. 2), [1982] 1 E.R. 354, at p. 367, as follows: |
| The rule [in Foss vs. Harbottle] is the consequence of the fact that a corporation is a separate legal entity. Other consequences are limited liability and limited rights. The company is liable for its contracts and torts; the shareholder has no such liability. The company acquires causes of action for breaches of contract and for torts which damage the company. No cause of action vests in the shareholder. When the shareholder acquires a share he accepts the fact that the value of his investment follows the fortunes of the company and that he can only exercise his influence over the fortunes of the company by the exercise of his voting rights in general meeting. The law confers on him the right to ensure that the company observes the limitations of its memorandum of association and the right to ensure that other shareholders observe the rule, imposed on them by the articles of association. If it is right that the law has conferred or should in certain restrictive circumstances confer further rights on a shareholder the scope and consequences of such further rights require careful consideration. |
| To these lucid comments, I would respectfully add that the rule is also sound from a policy perspective, inasmuch as it avoids the procedural hassle of a multiplicity of actions. |
[11] Counsel for the defendants urged that this matter falls precisely within the rule in Foss v. Harbottle6 as enunciated and adopted in the foregoing quotation.
[12] That the rule in Foss v. Harbottle extends to situations where, as here, the defendant is the Crown in right of Canada is evidenced in Antrim Yards Ltd. et al. v. Canada7 where Strayer, J., as he then was, wrote at paragraph 23:
| With respect to the claim for damages or recovery of money, I think it will suffice to say that the plaintiff corporations have standing because what they seek is the recovery of money paid by them and losses allegedly suffered by them as a result of the Exemption Order. I am unable to find any basis for standing for the individual plaintiffs to seek recovery of money paid out by their companies or business losses suffered by their companies alleged to be attributable to the impugned Order. I believe the rule in Foss vs. Harbottle... precludes any action by them as a matter of law. Unlike an action for a declaration, an action for recovery of money or damages can only be brought by the party who actually suffered the loss. It was the corporations who were the taxpayers and who were the competitors of those exempted by the Exemption Order. I therefore find that the individual plaintiffs lack standing to claim recovery of tax monies paid or damages suffered pursuant to the Exemption Order. |
| [citation omitted] |
[13] On the issue of "abuse of process", counsel for the defendants referred me to Burt v. McLaughlan8. That action arose out of the collapse of the Canadian Commercial Bank. An earlier action was commenced against the same defendants by the liquidator of the bank. The action by the liquidator was settled. The action cited before me was brought by shareholders of the bank. Mr. Justice Wachowich, as he then was, wrote at paragraphs 11 to 14:
| I am of the view that the injury of which the respondents complain, and which forms the basis of the claim against the applicant is, in essence, diminution of the value of their shares. This is a consequential damage, flowing from the injury or damage allegedly done to C.C.B. [Canadian Commercial Bank]. The respondents therefore have no independent, personal right of action. Thus, whatever rights the respondents may have, and whatever claims they might make against the applicants arise because of their status as shareholders. The respondents' rights are the same as the rights of the bank; the claims of the respondents are the same as the claims of the bank. It is through the liquidator that those rights are exercised. |
| In arriving at this conclusion, I find to be of particular significance the similarity between the respondents' statement of claim in the matter before me, and that of the [liquidator in the previous action described above. In that earlier action, the liquidator sued the present applicant on behalf of the bank, and the allegations made and the claims advanced in the present statement of claim are, to a large extent, identical to those set out in that earlier statement of claim. The portions of the present statement of claim which put forth the allegations relating to the present respondents appear to be grafted onto the previous statement of claim. |
| There is no question that in that earlier action the liquidator represented the rights and the interest of the bank. Because, as I have held, the shareholders' action in the matter before me is a derivative action, the rights, interests and claims of the shareholders are merely those of the corporation in which they hold shares, that is, the bank. To put it another way, the rights, interests and claims raised in this action are none other than the rights, interests and claims raised in the liquidator's action. Because the liquidator stood in the shoes of the bank in the previous action, and the claims of the shareholders are those of the bank, it therefore follows that the liquidator stood in the shoes of the shareholders as well. |
| That previous action was settled. In my view it would be an abuse of the process of the court to allow the shareholders to pursue claims now which have already been settled... . |
[14] Counsel for the defendants urged that precisely the same could be said on the facts of this matter.
[15] Counsel for the plaintiffs urged that the rule in Foss v. Harbottle and, presumably, the words of Justice Wachowich just quoted, have no application where the defendants, as here, are Crown defendants and liability, if any, arises out of a public law duty rather than a private law duty. For this proposition, he cited Hill v. Chief Constable of West Yorkshire9. In that case, Lord Keith of Kinkel wrote at page 59:
| By common-law police officers owe to the general public a duty to enforce the criminal law:... |
| [citation omitted] |
[16] While counsel pointed to paragraph 18 (a) of The Royal Canadian Mounted Police Act10 for the proposition that such a common law duty has, in the case of the defendant The Royal Canadian Mounted Police, been converted to a statutory duty, he urged that a common law duty to the public at large nonetheless existed with respect to the other defendants.
[17] Counsel for the plaintiffs directed my attention to the following passage from Nash v. Ontario at page 611:
| With respect to [the issue of whether the motions judge erred in striking claims for breach of statutory duty, negligent performance of a statutory duty or power, and negligent investigation], the law relating to breach of statutory duty, negligent performance of a statutory duty or power, and negligent investigation is not so clear that we are prepared to say that these actions must fail. Even the Crown conceded that the law in this area is "muddy". Accordingly, the motions court judge erred in holding that "it is plain, obvious and beyond doubt" that these actions cannot succeed. |
[18] I reach a different conclusion on the facts of this matter where a corporation is interposed between the plaintiffs, as shareholders of that corporation, and the defendants. Against the test in Foss v. Harbottle, adopted and applied more particularly in the cases cited above, I conclude that the law applicable to the facts of this matter is not in the least "muddy". I am satisfied that "it is plain, obvious and beyond doubt" that on the facts of this action as pleaded, the plaintiffs cannot succeed.
[19] Further, by analogy to the reasoning from Burt v. McLaughlan quoted above, I am satisfied that this action constitutes an abuse of process.
CONCLUSION
[20] For the foregoing reasons, this application on behalf of the defendants will be allowed. The plaintiffs' statement of claim will be struck out, without leave to amend, and this action will be dismissed with costs of this motion in favour of the defendants.
__________________________
Judge
Ottawa, Ontario
December 22, 1999
__________________
2 Court File T-1741-96. That action was settled pursuant to a settlement agreement reached in November of 1996. In the result, the Highwood action was wholly discontinued on the 24th of January, 1997.
4 (1989), 58 D.L.R. (4th ) 396.