Is the Plaintiff’s Motive to Sue Relevant? The Court of Appeal Says Probably Not

It is not uncommon for defendants to wonder if the plaintiffs have an ulterior motive for bringing a lawsuit beyond the pleaded request for damages and other relief. In Huachangda Canada Holdings Inc. v. Solcz Group Inc., the defendant pleaded particulars of the plaintiff’s supposed ulterior motive for bringing the action in two paragraphs of the statement of defence. The Ontario Court of Appeal upheld the motion judge’s decision to strike out those paragraphs of the defence as frivolous and vexatious, concluding that allegations of motive are generally not relevant unless they are a constituent element of the tort being pleaded.

Background

The dispute between the parties arose from a share purchase agreement (“SPA”). The appellant, Solcz Group Inc. (“SGI”), was the vendor and defendant to the lawsuit. The respondent, Huachangda Canada Holdings Inc. (“HCH”), was the purchaser and plaintiff. HCH’s statement of claim pleaded that SGI made breached various representations and warranties in the SPA by failing to disclose or concealing serious issues with contracts made by a subsidiary of the business acquired under the SPA.

SGI’s statement of defence denied the allegations and claimed that HCH’s losses were caused by their own financial mismanagement and the actions of HCH’s principal shareholder, which was not a party to the action. The defence also pleaded that HCH’s motive in bringing the lawsuit was not “to recoup genuine damages for genuine wrongs”, but rather, to obtain a downward adjustment of the purchase price in the SPA after the fact.

HCH brought a motion to strike the two paragraphs of the statement of defence referring to HCH’s supposed ulterior motive for bringing the litigation. The motion judge struck out the impugned portions without leave to amend. He concluded that ulterior motive was irrelevant to the causes of action pleaded in the statement of claim; therefore, it was frivolous and vexatious within the meaning of Rule 25.11.

Motivation for the Claim Not Generally Relevant

The Court of Appeal upheld the motion judge’s decision and dismissed the appeal. While the motion judge apparently cited no authority for his conclusion that motive was irrelevant to the cause of action pleaded and therefore “scandalous, frivolous or vexatious” within the meaning of Rule 25.11, the Court of Appeal held that this position was amply supported by the case law. Past cases have held that a plaintiff’s motive in bringing an action, however allegedly improper, is not a defence in and of itself to the action; furthermore, pleadings with respect to the plaintiff’s motive are generally improper. But pleadings of motive will be permitted where they are an essential part of the cause of action or defence, or otherwise relevant to the cause of action as pleaded.

The motion judge correctly applied these principles and concluded that the allegations of ulterior motive in this case were neither essential elements of the causes of action as pleaded nor otherwise relevant to them. The Court of Appeal observed that SGI’s allegation that HCH only initiated the litigation to reduce the purchase price after-the-fact had no bearing on whether HCH had a valid claim under the SPA or not. As a result, the allegation was irrelevant and not properly part of the pleadings.

The Court of Appeal also rejected SGI’s argument that the pleading of “buyer’s remorse” was relevant because it went to the credibility of HCJ. If the plaintiff’s motive for bringing an action was relevant to credibility, then ulterior motive would be relevant and pleaded in almost every case. Furthermore, the Court held that “buyer’s remorse” was a factual conclusion open to the court after hearing all the evidence, not a legal cause of action or defence.

Huachangda Canada Holdings Inc. v. Solcz Group Inc., 2019 ONCA 649

DATE: 20190808

DOCKET: C66420

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