Scottish & York Insurance Co. v. York, docket T-2384-86

Date: 2000-01-04

Docket: T-2384-86

BETWEEN:

     SCOTTISH & YORK INSURANCE CO. LIMITED

     and VICTORIA INSURANCE COMPANY OF CANADA

     Plaintiffs

     -and-

     HER MAJESTY THE QUEEN IN RIGHT OF CANADA

     Defendant

     REASONS FOR ORDER

TEITELBAUM, J:

[1]      This decision concerns two motions. The first, for an order amending paragraph 18 of the Amended Statement of Claim dated January 21, 1987, is brought by the plaintiffs pursuant to Rule 75(1) and Rule 117(1) of the Federal Court Rules, 1998. The plaintiffs request an order amending the Statement of Claim in the following respects:

a)      by changing the name of the plaintiff, Victoria Insurance Company of Canada, to Traders General Insurance Company on account of a name change brought about by virtue of an amalgamation;

b)      by adding the following particulars of negligence against the defendant as subparagraphs to paragraph 18:

(e)      he failed to act or protect the interest of the unprotected Canadian policyholders which included the plaintiff, by requiring Co-Operators to return the deposits of SCC in Canada it had released to them when it learned that their misunderstanding of Co-Operators" assumption of SCC"s liabilities to the plaintiff was incorrect;

(f)      believing as he did, that Co-Operators assumed SCC"s liabilities to the plaintiff in respect of which he released SCC"s liabilities to Co-Operators, he failed to require Co-Operators to discharge those liabilities, or maintain margin requirements pursuant to s. 103 of the Canadian British Insurance Companies Act , R.S.C. 1980, c. I-15, or suspend registration of Co-Operators for non-compliance with its representations to the defendant.

[2]      The second motion is brought by the defendants to strike out paragraphs 4c, d, e, h, i and paragraph 5 of the Reply.

FACTS PERTAINING TO THE MOTIONS

[3]      By a Statement of Claim dated October 30, 1986, the plaintiffs commenced an action against the Superintendent of Insurance for Canada for negligence in connection with his advice to the Minister of Finance (Minister) to sanction an agreement of purchase and sale between Co-operative Fire & Casualty Company, subsequently Co-Operators General Insurance Company (Co-Operators) and Security Casualty Company, pursuant to section 108 of the Canadian British Insurance Companies Act, R.S.C. 1980, c. I-15.

[4]      This action was also brought in regard to the Superintendent"s actions in connection with the release of the assets maintained by Security Casualty in Canada, pursuant to sections 7 and 14 of the Foreign Insurance Companies Act, R.S.C. 1970, c. I-17, as amended.

[5]      On January 21, 1987, the plaintiffs filed an amended Statement of Claim substituting Her Majesty the Queen in Right of Canada (Crown) as the defendant, and by amending paragraph 2 to allege that the Superintendent is a servant of the Crown for whose act the Crown is vicariously liable, pursuant to subsection 3(1) of the Crown Liability Act, R.S.C. 1970, c. C-38. These were the only changes made to the Statement of Claim.

[6]      The Crown filed a defence on March 9, 1987 which admitted many of the facts relevant to this motion, but denied that the Superintendent owed any duty of care to the plaintiffs, and furthermore, if any duty of care was owed it denied that it was breached.

[7]      The Crown filed an Amended Defence on March 23, 1999 containing the following new paragraphs:

20. He states that Co-Operators General Insurance Company (Co-Operators) formerly known as Co-Operative Fire and Casualty Company gave notice to the plaintiffs by letter dated June 18, 1982, that the business which Co-Operators had assumed from the former Canadian branch of Security Mutual Casualty Company did not include reinsurance treaties. He further states that the plaintiffs received this notice on June 21, 1982.

21. He states that on or before July 2, 1982, the plaintiffs knew that the Superintendent of Insurance had released to Co-Operators the securities formerly held on deposit for Security Mutual Casualty Company.

22. He pleads and relies on the Public Authorities Protection Act, R.S.O. 1990, c. P-38 and in particular section 7 thereof.

23. He further states, in the alternative, that if the plaintiffs were owed the duty of care pleaded herein and if that duty were breached, which duty and breach are not admitted but expressly denied, then the plaintiffs had knowledge of that breach on or before July 2, 1982, with the result that any cause of action against the defendant in respect of that breach arose more than six months prior to the date on which this action was commenced. Accordingly, this action is barred by section 7 of the Public Authorities Protection Act.

[8]      The plaintiffs then served a Reply on March 30, 1999 which, inter alia, raises the discoverability rule, the existence of indefinitely continuing damages, the location of the course of action in a place other than the province of Ontario and the claim that the reserves held by the Minister pursuant to statutory authority constituted trust funds "which could not have been conveyed in contravention of the statute" and consequently remain the Crown"s possession.

GENERAL FACTUAL BACKGROUND

[9]      The plaintiffs are general insurance companies carrying on business in Canada and were Canadian policyholders of Security Casualty Company, a foreign insurer (hereinafter SCC).

[10]      The plaintiffs entered into a number of re-insurance treaties with Security Casualty between 1967 and 1980.

[11]      Pursuant to the provisions of sections 7 and 14 of the Foreign Insurance Companies Act, Security Casualty maintained assets in Canada under the control of the Minister.

[12]      SCC, which has its head office in Chicago, Illinois, holds a certificate of registry pursuant to the Foreign Insurance Companies Act, R.S.C. 1980, c. I-16.

[13]      SCC experienced financial difficulties in the United States which resulted in liquidation proceedings, as authorized by the Circuit Court of Cook County in Illinois on December 4, 1981. By Order of the Court, Frank J. Csar was appointed liquidator of Security Casualty.

[14]      At that time, SCC owed the plaintiffs approximately $850,000., and in respect of this liability, had $1 million on deposit in Canada pursuant to the provisions of the Foreign Insurance Companies Act.

[15]      The assets on deposit were of two forms: those vested in trust and those held by the Receiver General. In addition to these assets, SCC had operational bank accounts in Canada which had been seized by the Department of Insurance in August 1981 and caused SCC"s certificate of registry to be suspended.

[16]      SCC had branch offices in Canada, however, the policies pursuant to which SCC liabilities arose was in respect of reinsurance treaties which were administered by SCC"s head office in Chicago.

[17]      The liquidator of SCC, Mr. Csar, entered into an agreement with Co-Operative Fire & Casualty Company (hereinafter Co-Operators) whereby:

1. Co-Operators acquired all right, title and interest to the assets, property and business of the Canadian branch of SCC; and

2. Co-Operators agreed to assume "all obligations and liabilities of the vendor relating to the Canadian branch, contingent or otherwise and whether or not reflected on the audited balance sheet of the Canadian branch as at December 31, 1981...".

[18]      It was the Crown"s understanding that pursuant to the agreement outlined above, Co-operators was to assume responsibility for the re-insurance contracts, however, both

Mr. Csar and Co-operators deny that this was the case and have refused to honour the claims by the plaintiffs, pursuant to the Treaties.

[19]      Pursuant to section 23 of the Foreign Insurance Companies Act, a foreign insurer is obliged to make an annual statutory sworn report of its "Canadian business". For each and every year up to December 31, 1980, which was the last date for which there was a statutory filing prior to the agreement referred to in the previous paragraph, SCC had reported its business with the plaintiffs as Canadian business, and had maintained the required assets in Canada (section 14 of the Foreign Insurance Companies Act required a registrant to maintain assets in Canada to a value of 115% of its liabilities, building in a 15% margin of safety in the event of insolvency for Canadian policyholders). The Department of Insurance regarded this filing as necessary for the Department of Insurance to assess the amount of assets in Canada a foreign insurer should maintain.

[20]      Prior to the liquidation of SCC, the Department of Insurance had issued instructions to SCC"s chief agent in Canada regarding the necessity that SCC maintain records relating to its business with the plaintiffs in Canada at its branch office, to facilitate Department of Insurance verification of the statutory reporting.

[21]      The agreement referred to in paragraph 8 was approved by the Circuit Court of Cook County and to be effective had to have the sanction of the Minister of Finance (State) under section 108 of the Canadian & British Insurance Companies Act. Sanction was given on January 27, 1982.

[22]      The Department of Insurance recommended to the Minister that sanction be given to the agreement due to its belief that the purchaser was acquiring all the outstanding liabilities of SCC to its Canadian policyholders. This belief and the recommendation to the Minister were based on the terms of the Agreement Purchase and Sale between the parties.

[23]      The purchaser was registered as an insurer pursuant to the provisions of the Canadian & British Insurance Companies Act, R.S.C. 1970, c. I-15, as amended, (hereinafter the Act) and its acquisition pursuant to the Agreement of Purchase and Sale referred to in paragraph 8 was seen by the Department of Insurance as one to be regulated under section 108 of the Act.

[24]      Co-operators published notice in the Canada Gazette on January 2, 1982 of its intention to acquire the "Canadian business" of SCC under the terms of section 108 of the Act.

[25]      On January 19, 1982, SCC"s chief agent in Canada asked the Department of Insurance to release SCC"s assets in Canada to Co-operators.

[26]      Those assets which were vested in trust were released by letters from the Department of Insurance to the financial institutions, dated January 26, 1982. These letters also released to Co-operators the operational bank accounts that had been seized by the Department of Insurance in October 1981.

[27]      The assets in Canada of SCC that were held by the Receiver General were released on January 28, 1982 and February 23, 1982.

[28]      The certificate of registry of SCC pursuant to the Foreign Insurance Companies Act had been suspended by the defendant in October 1981, but reinstated from December 18, 1981 to February 18, 1982.

[29]      SCC did not file a list with the Minister of policyholders in Canada whose policies had not been surrendered or transferred pursuant to paragraph 35(2)(b) of the Foreign Insurance Companies Act (although this was not public knowledge), and neither did SCC publish or furnish proof of publication of the notice of the application for release of assets referred to in paragraph 35(2)(c) of the Foreign Insurance Companies Act.

[30]      The plaintiffs learned of the purchase transaction by June 14, 1982 when they wrote Co-operators to inquire how communication with respect to premium and losses would be set up between them, and learned by June 21, 1982, that Co-operators claimed not to have acquired the reinsurance assumed business of SCC.

[31]      From that time until the time the plaintiffs commenced this action, the defendant assured the plaintiffs that Co-operators" position was incorrect.

[32]      The purchase price paid by Co-operators was based on the net book value of the "Canadian branch" of SCC as at December 31, 1981. What happened between the liquidator of SCC and Co-operators to determine the purchase price was that instead of using the balance sheet in the historical form of statutory filing that had existed up to the time of purchase, which recorded as included liabilities, SCC"s liabilities to the plaintiffs, the liquidator retained Ernst & Whinney to prepare a balance sheet for the Canadian branch, and that financial statement excluded from the statement of liabilities, SCC liabilities to the plaintiffs.

[33]      Co-operators received all SCC"s assets (including on-going business) in Canada, but did not deduct, in calculating the purchase price, the SCC liabilities to the plaintiffs.

[34]      The Ernst & Whinney financial statements "reclassified" the reinsurance assumed liabilities of SCC which, as the statement recorded, were "previously reflected in the accounts of the branch" and constituted those liabilities as a head office liability, such that what had theretofore, as had been recorded in the statutory financial statements, had been a payable from the branch to Canadian policyholders, now became a payable to head office, and head office was recorded as the liability holder of all liabilities under reinsurance assumed (which included the plaintiffs).

[35]      Note "O" to the Ernst & Whinney balance sheet raised the spectre that it was possible to differentiate between the Canadian business of a foreign insurer, and the business of the Canadian branch of a foreign insurer.

[36]      The defendant acknowledges that it was not until the existence of that financial statement was discovered that they had any understanding of how the position taken by Co-operators might have any justification.

[37]      The plaintiffs state that it was not until they first saw the Ernst & Whinney statement that they appreciated how Co-operators might argue that they had not legitimately assumed those reinsurance liabilities.

[38]      The Ernst & Whinney financial statements were not viewed by the plaintiffs before the Co-Operators Affidavit of Documents, which was sworn and delivered in September 1986.

[39]      The defendant states that it would not have released SCC"s assets in Canada to Co-operators if they had an understanding that Co-operators was not assuming responsibility for the liabilities of SCC to all Canadian policyholders including the plaintiffs.

[40]      The defendant acknowledges that the responsibility of the office of the Department of Insurance was to ensure that companies registered under the Foreign Insurance Companies Act remained solvent to protect the interests of the policyholders of such insurance companies.

[41]      The action against the defendant is for damages arising out of the following circumstances:

a) the plaintiffs had ceded reinsurance to a foreign insurer by the name of Security Casualty Company for several years;

b) the foreign insurer maintained assets on deposit in Canada under s. 14 of the Foreign Insurance Companies Act, R.S.C. 1970, c. I-17, as amended, in respect of its liabilities to the plaintiffs and others;

c) the business of the Canadian branch of Security Casualty Company was sold by its liquidator to Co-Operators Fire & Casualty Company pursuant to an agreement of purchase and sale;

d) the defendant released the assets on deposit of Security Casualty Company, to Co-Operators, which assets included those whose deposit was required by virtue of the existence of Security Casualty Company"s liabilities to the plaintiffs;

e) Co-Operators subsequently did not honour Security Casualty Company"s liabilities to the plaintiffs.

ISSUES

[42]      The motion to amend the Statement of Claim concerns the following issue:

Do the amendments sought by the plaintiffs cause serious prejudice to the defendant which is not compensable in costs?

[43]      The motion to strike concerns two issues:

Did the defendants bring this motion as soon as practicable in accordance with rule 58?

Is the reply filed by the plaintiffs broader than specified by the Court of Appeal?

POSITIONS OF THE PARTIES

Plaintiffs"Position

[44]      The plaintiffs argue that a party may seek an amendment to its pleadings at any stage of the proceedings providing there is no demonstrable prejudice to the opposing party. It is submitted that there is no injustice resulting from the amendments sought by the plaintiffs and therefore it is in the interests of justice that they be allowed by this Court.

[45]      Secondly, the plaintiffs submit that even if the amendments were alleging a new cause of action, which they submit is not the case, so long as the facts upon which the amendment is sought were argued previously the amendment should be allowed.

[46]      Thirdly, the plaintiffs submit that if the limitation period argued by the defendant is applicable, its operation may be extended where there is continuance of injury or damages.

Defendant's Position

[47]      The defendant submits that the amendments sought by the plaintiffs raise a new cause of action rather than clarify the issues raised, and consequently they cannot be allowed as the limitation period has expired.

ANALYSIS

[48]      I will first deal with the plaintiffs" motion to add two new subparagraphs to paragraph 18 of the Amended Statement of Claim of 1987.

[49]      Rule 75(1) of the Federal Court Rulesstates:

75. (1) Subject to subsection (2) and rule 76, the Court may, on motion, at any time, allow a party to amend a document, on such terms as will protect the rights of all parties.

(2) Limitation"No amendment shall be allowed under subsection (1) during or after a hearing unless

(a)the purpose is to make the document accord with the issues at the hearing;

(b)a new hearing is ordered; or

(c)the other parties are given an opportunity for any preparation necessary to meet any new or amended allegations.

75. (1) Sous réserve du paragraphe (2) et de la règle 76, la Cour peut à tout moment, sur requête, autoriser une partie à modifier un document, aux conditions qui permettent de protéger les droits de toutes les parties.

(2) Conditions"L"autorisation visée au paragraphe (1) ne peut être accordée pendant ou après une audience que si, selon le cas:

a)l"objet de la modification est de faire concorder le document avec les questions en litige à l"audience;

b)une nouvelle audience est ordonnée;

c)les autres parties se voient accorder l"occasion de prendre les mesures préparatoires nécessaires pour donner suite aux prétention nouvelles ou révisées.

[50]      Rule 117(1) of the Federal Court Rules states:

117. (1) Subject to subsection (2), where an interest of a party in, or the liability of a party under, a proceeding is assigned or transmitted to, or devolves upon, another person, the other person may, after serving and filing a notice and affidavit setting out the basis for the assignment, transmission or devolution, carry on the proceeding.

(2) Objection to person continuing"If a party to a proceeding objects to its continuance by a person referred to in subsection (1), the person seeking to continue the proceeding shall bring a motion for an order to be substituted for the original party.

(3) Court may give directions"In an order given under subsection (2), the Court may give directions as to the further conduct of the proceeding.

117. (1) Sous réserve du paragraphe (2), en cas de cession, de transmission ou de dévolution de droits ou d"obligations d"une partie à une instance à une autre personne, cette dernière peut poursuivre l"instance après avoir signifié de déposé un avis et un affidavit énonçant les motifs de la cession, de la transmission ou de la dévolution.

(2) Opposition"Si une partie à l"instance s"oppose à ce que la personne visée au paragraphe (1) poursuive l"instance, cette dernière est tenue de présenter une requête demandant à la Cour d"ordonner qu"elle soit substituée à la partie qui a cédé, transmis ou dévolu ses droits ou obligations.

(3) Directives de la Cour"Dans l"ordonnance visée au paragraphe (2), la Cour peut donner des directives sur le déroulement futur de l"instance.

[51]      The issue raised by the plaintiffs' motion to amend the Statement of Claim is whether the subparagraphs which they seek to add arise substantially out of the same facts which were alleged in the original statement of claim. If this is the case, then it becomes irrelevant whether or not the amendments raise a new cause of action which is statute barred by the general prescription period of six years.

[52]      The defendant argues that a new cause of action may be raised, notwithstanding the limitation period, where there are special circumstances which invoke rule 76, providing that the criteria under rule 201 are met. However, it is argued that this does not apply to amendments which are sought pursuant to rule 75.

[53]      The defendant submits that there is a distinction between the old rules and the new rules which results in the terms of rule 201 to apply only to amendments made pursuant to rule 76, and consequently, amendments are not allowable if the limitation period has expired for a new cause of action.

[54]      Rule 201 of the Federal Court Rules states as follows:

201. An amendment may be made under rule 76 notwithstanding that the effect of the amendment will be to add or substitute a new cause of action, if the new cause of action arises out of substantially the same facts as a cause of action in respect of which the party seeking the amendment has already claimed relief in the action.

201. Il peut être apporté aux termes de la règle 76 une modification qui aura pour effet de remplacer la cause d"action ou d"en ajouter une nouvelle, si la nouvelle cause d"action naît de faits qui sont essentiellement les mêmes que ceux sur lesquels se fonde une cause d"action pour laquelle la partie qui cherche à obtenir la modification a déjà demandé réparation dans l"action.

[55]      In the alternative, the defendant argues that even if it is determined that rule 201 applies to amendments made pursuant to rule 75, the plaintiff"s amendments do not meet the criteria set out in rule 201 as these allegations do not arise out of substantially the same set of facts.

[56]      The plaintiffs have essentially argued that there is no new cause of action on the basis that there are no new damages. Referring to the jurisprudence cited by the defendant in support for the assertion that these amendments raise a new cause of action, the plaintiffs submit that each of those cases involves fact allegations with different damages than those originally claimed.

[57]      The plaintiffs further submit that the amendments do not support a new cause of action because they cannot stand on their own as they do not prove that what the defendant originally did was wrong. The fact situation upon which the plaintiffs seek relief was before the court in the original statement of claim, and therefore it is argued that the amendments are only an additional clarification.

[58]      On this point, the plaintiffs rely on the decision in [1967] S.C.R. 455">Cahoon v. Francks [1967] S.C.R. 455 where the Court considered whether the amendments proposed set up a new cause of action. The amendments sought to be included were made after the expiration of the twelve-month limitation period had expired and the appellant contended that the amendments raised a new cause of action which was statute barred. In that case, the respondent argued that there was only one cause of action for a single wrongful or negligent act and damages must be assessed in a single proceeding.

[59]      In considering this issue, Hall J. stated that the distinction between the old causes of action for damage to the person and damage to goods are no longer good law in Canada. A single act of negligence could no longer be split and made the subject of several causes of action.

[60]      I am in agreement with the plaintiffs that if the allegations contained in the subparagraphs sought to be added to paragraph 18 arise from the same factual situation as was before the Court in the Statement of Claim of 1987, then there is no new cause of action and the amendments must be allowed.

[61]      Thus, the central question is whether the allegations in the amendments arise from the same factual situation. The plaintiffs bear the burden of proving that the two new subparagraphs arise from substantially the same set of facts as the cause of action which they have already claimed relief.

Distinction between Old and New Rules

[62]      On the issue of the distinction between the new rules and the old rules, counsel for the plaintiffs stated that rule 201 refers to amendments that add or substitute a new cause of action, which will be allowed if they arise out of substantially the same set of facts. Rule 76, on the other hand, refers to amendments which change the identity of the parties or alter the capacity of the parties who are bringing the action.

[63]      Adding to this submission, the plaintiffs argue that the limitation period protection for amendments under rule 76 is addressed in rule 77 and thus it is not necessary that it be readdressed by rule 201.

[64]      The defendant argues that rule 201 must be interpreted as saying that amendments cannot be made if the limitation period has expired for a new cause of action, although there is no jurisprudence under the new rule.

[65]      However, counsel for the defendant added that if rule 201 is interpreted in the broadest sense, in that it would apply to all amendments and not just those made under rule 76, then it is their submission that the amendments sought by the plaintiffs still would not satisfy rule 201 on the basis that they do not arise out of the same set of facts.

Conclusion

[66]      Having carefully reviewed the written submissions of the parties, as well as the arguments presented at the hearings held on November 17^th and 18^th, 1999 it has become apparent to me that the only question raised by this motion is whether the amendments are based on substantially the same facts as those contained in the Statement of Claim of 1987.

[67]      There has not yet been a case which interpreted and applied rule 75, rule 76, and rule 201 of the Federal Court Rules, 1998. Therefore, there is no jurisprudence to assist the Court in this matter.

[68]      Having said that, I am of the view that rule 201 must be interpreted broadly. The wording is unambiguous - "if the new cause of action arises out of substantially the same facts as a cause of action in respect of which the party seeking the amendment has already claimed relief in the action".

[69]      In my view, the two new subparagraphs sought to be added by the plaintiffs to paragraph 18 of the Amended Statement of Claim arise out of substantially the same set of facts as the cause of action for which they have already claimed relief. Thus, the amendments must be allowed pursuant to rule 201.

[70]      Furthermore, I am satisfied that rule 75 permits the Court, on motion, to allow a party to make an amendment. Rule 75 is not limited to make amendments subject to rule 76.

MOTION TO STRIKE PARAGRAPHS IN REPLY

[71]      The defendant brought a motion to strike paragraphs 4 c, d, e, h, i, and paragraph 5 of the reply. This motion is based on two grounds. Firstly, the reply was delivered on March 30, 1999 which is beyond the prescribed time of the Rules and inconsistent with the judgment of the Court of Appeal. Secondly, the paragraphs referred to above are not the proper matter of a reply.

[72]      The defendant submits that when the judgment of the Court of Appeal was delivered, the Court was unaware that the plaintiffs had never filed a reply in the first instance and this explains why paragraph 2 of the judgment reads as follows:

"The respondents be granted leave to amend their reply in relation to this amendment to the Statement of Defence and to conduct any further examination for discovery of the Appellants as are made necessary by the said amendment."

[73]      The defendant argues that what the Court of Appeal meant was that the plaintiffs could file an amended reply to address the matters in respect of the amended Statement of Defence, and therefore they granted the plaintiffs leave to amend.

[74]      The defendant essentially argues that through these amendments, the plaintiffs plead the protection of the limitation period in the Public Authorities Protection Act yet their reply should have only been in response to those amendments.

[75]      The defendant submits that these are sufficient grounds to strike the amendments.

[76]      In the alternative, relying on decisions of the Supreme Court of Ontario and the Ontario General Division, the defendant submits that the paragraphs referred to are not the proper subject matter of a reply on the basis that they raise a new cause of action.

[77]      In Solid Waste Reclamation Inc. v. Philip Enterprises Inc. 49 C.P.C. (2d) 245 Lane J. of the Ontario General Division, considered whether new grounds of claim were raised in reply which were not pleaded in the amended Statement of Claim.

The applicant argued that it was improper to plead new grounds of claim in a reply and that these allegations should be struck.

[78]      The Court held that it was not appropriate to introduce a new issue and that if the plaintiffs were serious about trying that issue, it should be set up in a separate action.

[79]      In further support of their position, the defendant then referred the Court to the 1954 decision of the High Court of Justice in Burford v. Cosa Corporation of Canada [1955] O.W.N. 8 where Senior Master Marriott held that a subsequent pleading may not raise any new ground of claim.

[80]      In response to these arguments, counsel for the plaintiffs argues that the defendant brought this motion after moving ahead with discovery of his client and has thereby waived the entitlement of the defendant to bring a motion to strike out.

[81]      The plaintiffs submit that if a defendant operates outside of the ambit of the statute in trying to discharge something that the statute says they can discharge, they cannot then benefit from the protection of the Public Authorities Protection Act. In effect, you cannot rely on the limitation period in the Act if you contravene the statute.

[82]      As authority for this submission, the plaintiffs referred the Court to the decision of the New Brunswick Court of Appeal in Clark, Drummie & Company v. Allen 130 N.B.R. (2d) 97 where the Court considered the appellants" submission that the defendant was not acting in accordance with the statute and therefore was precluded from the protection conferred by that statute. The Court accepted this argument and allowed the claim to proceed although it was beyond the limitation period.

[83]      The plaintiffs applied this reasoning to their argument that by failing to comply with the duties set out in section 58 of the Foreign Insurance Companies Act, the Crown cannot now rely on the Public Authorities Protection Act for protection.

[84]      The plaintiffs submit that this is a genuine response to the amendment that the defendant has obtained which allows him to plead the Public Authorities Protection Act, and it is relevant to this motion because it explains why the Court should not apply that Act.

[85]      Lastly, the plaintiffs raised the issue of "fresh-step" principle which provides that you have waived your right to attack anything. The plaintiffs argue that there is a pleading, there has been discovery of both parties on the amendments and on the reply, and now there is a motion to strike out parts of the reply.

[86]      Rule 58 of the Federal Court Rules states:

58. (1) A party may by motion challenge any step taken by another party for non-compliance with these Rules.

(2) A motion under subsection (1) shall be brought as soon as practicable after the moving party obtains knowledge of the irregularity.

58. (1) Une partie peut, par requête, contester toute mesure prise par une autre partie en invoquant l'inobservation d'une disposition des présentes règles.

(2) La partie doit présenter sa requête aux termes du paragraphe (1) le plus tôt possible après avoir pris connaissance de l'irrégularité.

[87]      It is submitted by the plaintiffs that there are no cases dealing with the new rule 58, which was the old rule 302(c), and that the fresh step wording is no longer there but that the principle is still applicable to the facts of this case. There was discovery of the plaintiffs on everything that occurred after the new pleadings were exchanged, and there was cross-examination of the plaintiffs on the summary judgment motion which has been adjourned sine die.

[88]      Effectively, the plaintiffs have made the argument that the defendant had the pleading, has benefited from a discovery on the pleading, and now seeks to strike out part of the pleading. It is submitted that the reason for this motion by the defendant is that if these paragraphs remain, and if they are established at trial, they will prevent the defendant from relying on the protection of the Public Authorities Protection Act.

[89]      In response to this argument by the plaintiffs, the defendant argues that rule 58 does not provide that you cannot discover on the reply if you have taken a fresh step. The defendant states that they were trying to get the summary judgment motion to be heard, and that there was communication between the parties with respect to the amendments to the Statement of Claim and to the reply, and in the circumstances the motion was brought as soon as practicable.

[90]      The defendant further submits that the reply is contrary to the Order of the Court of Appeal and that rule 58 has no application. In summary, the defendant argues that the amendments made by the plaintiffs are much broader than just a reply to the amended defence.

[91]      Although the judgment of the Court of Appeal does not address the issue of the plaintiffs" failure to file a reply within the delays set by the Rules, clearly because they were not aware there was no reply filed, I am convinced that they intended that the plaintiffs file a reply strictly dealing with the amendments allowed to the Statement of Defence.

Conclusion

[92]      The issue to be decided on this motion is whether the Reply filed by the plaintiffs complies with the judgment of the Court of Appeal or whether it is broader than the Court of Appeal intended.

[93]      I have assessed the arguments put forth by both parties in respect of the nature of the amendments made by the plaintiffs in response to the Amended Statement of Defence. It is my view that these submissions are irrelevant in that the defendant is precluded from bringing this motion based on the fact that they waited two months before bringing the motion for hearing.

[94]      The rule is explicit in stating that such a motion must be filed as soon as practicable, and given the evidence presented at the hearing on November 18, 1999 I find that the defendant had ample opportunity to bring a motion in the two month period after they received the amendments and prior to this motion being filed.

[95]      Although the parties were communicating with respect to the amended statement of defence and the reply, and they were attempting to move the matter forward in order to set a date for the motion for summary judgment, this does not justify the fact that two months passed before this motion was filed.

[96]      For these reasons, I do not find that the defendants complied with rule 58(2) on the grounds that this motion was not brought as soon as practicable. Therefore, the motion is dismissed.

[97]      Costs in the cause.

                             "Max M. Teitelbaum"

                        

                                 J.F.C.C.

Ottawa, Ontario

January 4, 2000