Corporations Dealing with Vexatious Parties 


March 2010 - (InBrief Spring 2010)

InBrief Spring 2010

In Ontario, two regulations came into force at the beginning of this year that may impact on the ability of corporations to deal cost-effectively with claims by vexatious litigants. The province is undergoing civil justice reform, partially under the guise of access to justice, but corporate defendants may struggle with certain parties that take that access to justice for granted.
The Changes

The modifications, which are in force as of January 1, 2010, have been written about extensively. One significant change sees an increase in the Small Claims Court limit from $10,000 to $25,000. Another change pertains to codification of proportionality in the Rules of Civil Procedure in the Superior Court of Justice. Some of the other changes include altering the scope of documentary discovery, changing the summary judgment standard, and the requirement for a discovery plan.
The Vexatious Litigant

Conceptually, the idea of what makes a party "vexatious" exists in a spectrum, ranging from a delusional self-represented party who brings repeated claims to a sophisticated represented person that has filed a single claim purely with the intent to exploit the corporation's reputation and wealth. Only some of these conceptually vexatious plaintiffs will be included in the legal definition and many will not.
Where a judge of the Ontario Superior Court of Justice is satisfied that a person has persistently, and without reasonable grounds, instituted vexatious proceedings or conducted proceedings in a vexatious manner, the judge may order that the person not be able to institute or continue any proceeding without leave of the court, pursuant to section 140 of the Courts of Justice Act. Vexatious actions include actions brought for the purpose of harassing other parties.
In applying section 140 and determining whether a person is a vexatious litigant, the court will consider whether a claim is repetitive of prior proceedings or rolls forward previous allegations into new claims, whether a claim cannot reasonably succeed, whether a claim is brought for an improper purpose, whether a litigant refuses to pay costs of prior proceedings, and whether the litigant persistently appeals decisions. These principles suggest that a repetitively vexatious litigant will be prevented from bringing further actions. However, a single unmeritorious claim will likely satisfy fewer than half of the criteria applied to section 140, and judges will typically give a litigant their "day in court" unless the claim is obviously frivolous. As such, section 140 will not save many corporations faced with a vexatious claim.
Challenges for Corporations

The increase in the Small Claims Court jurisdictional limit may be the civil justice reform which is most relevant to corporations facing vexatious litigants. Whereas formerly such litigants could only claim up to $10,000, they now can file a Plaintiff's Claim for up to $25,000 without using the Superior Court of Justice. An apparent benefit to the increase in the Small Claims Court jurisdictional limit is that a corporate defendant now does not need to have a lawyer represent him or her for a claim between $10,000 and $25,000. However, corporations may be wary of asking in-house counsel to dedicate the time required to defend such litigation and may not be comfortable using a paralegal instead of a lawyer for a dispute worth $25,000.
While provided for in different language than the Rules of Civil Procedure, the Small Claims Court has a rule providing a procedure for striking out documents on motion. If any part of any document is "inflammatory, a waste of time, a nuisance or an abuse of the court's process," the court may stay or dismiss an action.
A claim involving generalized allegations and insufficient details that plainly cannot succeed may also be struck; however, a claim will not be struck simply because it is novel. Although the court may also permit amendment of the claim, if the facts pleaded do not demonstrate a legally complete cause of action, there may be grounds for dismissal of the action. Also, vague allegations that make it impossible for an opposing party to reply may be struck, and lastly, claims that constitute a fishing expedition – an action brought solely to access the records of a corporation – may be struck.
The likely inability to dispose of spurious claims in the Small Claims Court through a motion for summary judgment only complicates things for corporations who wish to quickly dispose of vexatious claims that are not dismissed pursuant to rule 12.02.
Dealing with Vexatious Litigants

Here are some suggestions for dealing with vexatious litigants under the new rules:
Contact counsel early. Pre-

  • litigation conduct may determine whether a lawsuit is even filed by an unmeritorious claimant. A client should not be hesitant to contact reliable counsel early to save potential costs and liability down the road.
  • Judge the merits of a seemingly vexatious claim up front. Once a claim is filed, a corporate defendant should perform an honest consideration of whether it bears fault in the manner alleged. Even a claim that appears spurious should be considered in the context of the law to determine if the claim really is vexatious. Companies may make a business decision to settle a case based on costs, even if the law is in their favour. A client should be aware of such circumstances as soon as possible.
  • Try to strike the claim. As detailed above, even if the litigant does not meet the section 140 test for status as a vexatious litigant, the claim may still be struck if it is frivolous or abusive.
  • If you choose to litigate, do so aggressively. If you are going to spend the money to defend against a vexatious claim, win. Conduct the required investigations, retain the required experts, and, most importantly, be willing to spend the money to be properly prepared for a hearing.

Some Final Words

Larger corporations may generally view themselves as being at a higher risk of facing a vexatious litigant because of their public profile. However, smaller companies may feel like their entire trade reputation rests on how they deal with any particular plaintiff. When dealing with vexatious claims under the new civil justice regime, hopefully the courts will remember that "People's courts" govern not only individuals, but also corporations as legal persons.

Ed.: This article is an abridged version of a much lengthier article prepared by Adam that contains footnotes, citations and other references and details. Without cost or obligation, you may obtain the longer version by contacting Adam directly.
This article appeared in the Lang Michener LLP InBrief Spring 2010.