Canada: To Allow or Not to Allow the Amendments? That is the Question

Last Updated: April 2 2013
Article by Justin R. Seitz

The Honourable Madam Justice Ellen Picard, Madam Justice Marina Paperny, and Mr. Justice Peter Martin of the Alberta Court of Appeal ("ABCA") recently handed down the decision in Canadian Natural Resources Limited v Arcelormittal Tubular Products Roman S.A., 2013 ABCA 87. At issue was whether the case management judge erred in failing to allow the appellants to amend their statement of defence on the grounds that there was no evidence to support the allegation made in the proposed amendments. To be more precise, the ABCA had to consider whether it would be appropriate to allow the appellants to amend their statement of defence when the proposed amendments effectively allege that the within action amounted to fraud.

Canadian Natural Resources Limited ("CNRL") bought steel pipe manufactured and distributed by the appellants, Arcelormittal Tubular Products Roman S.A. and Mittal Steel North America Inc., for use in its oil-sands production facility known as the Horizon Project. CNRL claimed that some of the pipe was defective and, as a result, had to be removed and replaced. It commenced two actions against the appellants to recover their costs. In their defence the appellants argued that problems with the pipe was the result of an "engineering error" and negligence on the part of CNRL and Fluor Canada Ltd. (Fluor is the designer of the Horizon Project). Consequently the appellants sought to amend their statement of defence so as to allege, among other things, that CNRL and Fluor incorrectly installed the pipe and failed to disclose this problem. The case management judge, the Honourable Madam Justice E.A. Hughes, allowed most of the amendments but agreed with CNRL and Fluor that the proposed amendments relating to the incorrectly installed pipe and the failure to disclose the problem effectively amounted to an allegation that the within actions constituted fraud.

At paragraph 36 of her judgement Hughes J. referred to the "classic rule" for the amendment of pleadings as set out in Balm v 3512061 Canada Ltd. , 2003 ABCA 98, at para. 43: "an amendment should be allowed, no matter how careless or late, unless there is prejudice to the other side, and even that is no obstacle if it is repaired." As noted in Balm (at paras. 25-41) the evidentiary burden for substantive amendments to pleadings is generally low. However Hughes J. noted that the threshold is significantly elevated when the proposed amendments raise allegations of fraud, high handedness or malicious conduct, and therefore she supported the position in Balm that a higher evidentiary burden or "stiffer test" is required when an amendment is adding an allegation of fraud (at paras. 72-78). The case management judge also pointed out that the Court in Mikisew Cree First Nation v Canada, 2002 ABCA 110, at para. 61, held that "there must be good ground [...] to relax the general rule against amending to allege fraud" and that "[s]ome cases say that 'exceptional circumstances' are needed", and that "it is impossible to show 'good ground' without significant evidence" (at para. 77). Furthermore, as the appellants sought to rely on statements made in CNRL's Statement of Claim in another discontinued but related action against Fluor as evidence supporting their amendments, the case management judge had to consider under what circumstances a court may rely on pleadings filed in another action as evidence in support of amendments to pleadings.

The Honourable Madam Justice E.A. Hughes concluded that there was no evidence to support the appellants' allegations and therefore they were not allowed to make those amendments. She held that admissions made in a Statement of Claim in a separate action are admissible as evidence against the party that made those admissions, but not against any other party. Consequently she did not allow the appellants to rely on CNRL's admissions in the Fluor matter. The appellants disagreed and launched their appeal alleging that the case management judge erred in determining that there was insufficient evidence to support the amendments.

The Alberta Court of Appeal agreed with the case management judge. The Court concluded that the test in Mikisew cannot be met without significant evidence and that there were no exceptional circumstances that would relieve the appellants of the burden of producing evidence to support the amendments. The Court went on to say that there was no reviewable error in her conclusion that there was no evidence to support the amendments. Furthermore, the Court held that the submission that the allegations in the statement of claim can be used to support the rejected amendments must fail because the allegations in this context were mere allegations and not admissions.

For now, as Hughes J. correctly noted, the rule in Alberta with respect to amending pleadings appears to be as pronounced in Balm and Mikisew: the evidentiary burden to amend pleadings is generally low, however if the amendments raise allegations of fraud, high handedness or malicious conduct, the evidentiary burden is elevated; the party wanting the amendments must show "good ground" or that there are "exceptional circumstances" for relaxing this burden, and this means the proposed amendments must be supported by evidence. The Alberta Court of Appeal did not clarify what would be considered "exceptional circumstances," but presumably this will be determined on a case-by-case basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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