Rule 21(3) of the Rules of Court, B.C. Reg. 221/90 says that pleadings in defence of breach of contract claims made under the Rules of Court must specifically deny the matters of fact plead in the statement of claim. However, in the case of Patym Holdings Ltd. v. Michalakis, 2005 BCCA 636 [Patym] the British Columbia Court of Appeal held that Rule 21(3) does not require the defendant to identify the specific allegations of fact made by the plaintiff that the defendant disagrees with. Rather, it is sufficient for the statement of defence to “deny each and every allegation of fact contained in the Plaintiff’s Statement of Claim”.
This article reviews some of the requirements for pleading a defence to a claim of Breach of Contract made under the British Columbia Rules of Court, B.C. Reg. 221/90 (the “Rules of Court”). In particular, the interpretation of Rule 21(3), which requires statements of defence in breach of contract claims to specifically deny the facts plead by the plaintiff which the defendant disputes, is considered.
The Rules for pleading a defence to breach of contract
In pleading a claim for breach of contract, the plaintiff’s statement of claim will set out the material facts on which it intends to rely, and allege how those facts constitute a breach of contract. The defendant’s statement of defence will then respond to those allegations. The form these pleadings must take in British Columbia is defined by the Rules of Court, B.C. Reg. 221/90.
Rule 19 deals with pleadings generally, and Rules 20 (which deals with statements of claim) and 21 (which deals with statements of defence and counterclaims) provide specific provisions which modify the general requirements in Rule 19.
Rule 19(20) establishes that the defendant’s pleadings may, ordinarily, take the form of a general denial:
19(20) It is not necessary in a pleading to deny specifically each allegation made in a preceding pleading and a general denial is sufficient of allegations which are not admitted, but where a party intends to prove material facts that differ from those pleaded by an opposite party, a denial of the facts so pleaded is not sufficient, but the party shall plead his or her own statement of facts if those facts have not been previously pleaded.
This rule allowing a general denial is modified for claims involving breach of contract by Rule 21(3), which provides as follows:
21(3) In an action for money due under a contract, a statement of defence must specifically deny such matters of fact, from which the liability of the defendant is alleged to arise, as are disputed.
Although its application is not restricted to claims for breach of contract, Rule 19(21) is also relevant. It provides that pleadings denying allegations must plainly address the matter being denied:
19(21) If a party in a pleading denies an allegation of fact in the previous pleading of the opposite party, the party shall not do so evasively but shall answer the point of substance.
Thus, the Rules of Court impose somewhat stricter requirement for pleadings in defence of contract claims than for most other claims.
The facts in Patym Holdings Ltd. v. Michalakis, 2005 BCCA 636.
The plaintiff, Patym Holdings Ltd., was a landlord. The defendant, Michael Michalakis, was one of its tenants. Patym alleged that Michalakis owed it approximately $50,000 under the lease. Patym sued Michalakis for payment, and Michalakis’statement of defence simply stated the following:
The Defendant, MICHAEL MICHALAKIS, also known as MICHAEL ANDREAS MICHALAKIS, and each of them, deny each and every allegation of fact contained in the Plaintiff’s Statement of Claim filed herein and put the Plaintiff to the strict proof thereof.
WHEREFORE the Defendant, MICHAEL MICHALAKIS, also known as MICHAEL ANDREAS MICHALAKIS, pray that this proceeding be dismissed with costs to the Defendant, MICHAEL MICHALAKIS, also known as MICHAEL ANDREAS MICHALAKIS, against the Plaintiff.
Patym brought an application for an order striking out the statement of defence and granting judgment for the amount claimed in the statement of claim.
Parenthetically, I note that in Fraser Gate Apartments Ltd. v. Western Surety Co. (1998), 54 B.C.L.R. (3d) 1 at para. 4 (B.C.C.A.) Southin J.A. noted that “the words ‘and puts the Plaintiffs to the strictest proof thereof’ add nothing at all to the denial”.
Rulings of the British Columbia Supreme Court
Master Baker, who heard the matter in the first instance, granted the application and granted judgment against the defendant. Master Baker held that the statement of defence did not comply with the Rules of Court because it did not provide the plaintiff with useful information about the nature of the defence, which the Rules of Court required in claims for breach of contract.
Mr. Justice Parrett (2002 BCSC 1610) dismissed the appeal from Master Baker’s order on the basis that Master Baker had not made a palpable and overriding error.
Regarding the effect of Rule 21(3) Parrett J. said the following at paras. 27-28:
While it is true that R. 19(20) permits a general denial, the Rules go on to detail a number of exceptions and instances where specifics are required. Some of these instances are detailed within R. 19(20) itself. Rule 21(3) is a specific exception applicable to actions for money due under a contract.
In my view, R. 21(3) applies to the present action and, because of the claim advanced, overrides, to the extent necessary, the general permissive provisions of R. 19(20). The statement of defence, at issue here, does not comply with its requirements.
Ruling of the British Columbia Court of Appeal in Patym Holdings Ltd. v. Michalakis, 2005 BCCA 636
Interpretation of Rule 21(3):
Smith J.A., writing from himself and Saunders J.A., allowed the plaintiff’s appeal and set aside the judgment made against the defendant.
Madam Justice Newbury, dissenting, would have dismissed the appeal.
Smith J.A. held that the statement of defence was not a general denial, but was comprised of specific denials in compliance with Rule 21(3). In coming to this conclusion, Smith J.A. outlined in the history of pleadings including demurrer and dilatory and peremptory pleas.
Smith J.A. explained that the ancient rule at common law was that general denials were sufficient, but that legislative amendments in England in 1875 prohibited general denials and required defendants to deny specifically the allegations of fact they wished to dispute. Those English amendments were adopted in British Columbia in 1880 and “[f]or decades thereafter, the rules requiring specific denials and prohibiting general denials remained in effect in this province”: Patym at para. 18. Indeed, the 1961 rules stated that “each party must deal specifically with each allegation of fact of which he does not admit the truth, except damages”: Patym at para. 18.
To simplify pleadings, in 1970 the British Columbia rules were changed to allow general denials in most cases. An exception was made for money due under a contract where defendants are still required to specifically deny all disputed allegations of fact from which liability is alleged to arise.
However, Smith J.A. explained that a specific denial does not require each fact being denied to be individually identified and denied. All of the facts alleged by the plaintiff can be specifically denied using just one sentence:
Here, the defendant has denied “each and every allegation of fact contained in the plaintiff’s Statement of Claim”. That is not a general denial: rather, it is a specific denial of every single allegation of fact made in the statement of claim. It was not necessary for the defendant to set out each allegation at length and to deny it separately. There would be nothing practically to be gained by doing so.
(Patym at para. 26).
Thus, the majority of the Court of Appeal held that Rule 21(3) does not require the defendant to disclose details about how or why it disputes the plaintiff’s claim. Although Rule 21(3) prohibits general denials, it can still be complied with in just one sentence so long as carefully chosen language is sued i.e. by saying that the defendant “denies each and every allegation of fact in the statement of claim.”
Madam Justice Newbury, dissenting, said that Rule 21(3), which provides an exception to the general requirement under Rule 19 that general denials are sufficient, must have been intended to provide the plaintiff with some meaningful information about the proposed defence:
Presumably, the purpose of the exception was to allow the plaintiff in an action for money allegedly due under a contract, to know what matters of fact are being denied by the defendant… As it stands, the plaintiff in this action has no idea, and the Court does not know, "what the gist of the action will be".
(Patym at para. 52).
[T]he denial is framed in general terms so as to leave the plaintiff and the Court in a quandary as to what the dispute is about. With all due respect to Morton L.J.'s judgment in John Lancaster Radiators Ltd., I am of the view that this pleading is evasive and should not stand.
(Patym at para. 52).
The statement of defence also complied with the other requirements for pleadings
Smith J.A. went on to consider whether the statement of defence complied with various other requirements for pleadings under the Rules of Court, and found that it did.
Regarding Rule 19(21) which requires pleadings to “answer the point of substance”, Smith J.A. said that the purpose of that rule was to prevent evasive pleadings. For example, if the plaintiff plead that the defendant “offered a bribe of $500”, it would be evasive for the defendant to plead that it “never offered a bribe of $500”. Such a pleading would allow the defendant to later say that it actually offered a bribe in some other slightly different amount. Rather, to not be evasive, the defendant is required to plead that it “never offered a bribe of $500 or any other sum”.
Smith J.A. held that the statement of defence in Patym was not evasive, but unambiguously denied each allegation of fact in the statement of claim.
Regarding Rule 19(24), Master Baker had held that the statement of defence was frivolous, vexatious, and embarrassing because it did not provide information on the nature of the defence or on the disputed issues. Smith J.A. disagreed, and said that “[a]t the pleading stage, the court may not know what the gist of the action will be”.
Smith J.A. approved of the following definition of embarrassing:
... ["embarrassing" means] that the allegations are so irrelevant that to allow them to stand would involve useless expense, and would also prejudice the trial of the action by involving the parties in a dispute that is wholly apart from the issues. In order that allegations should be struck out from a defence upon that ground . . . their irrelevancy must be quite clear and, so to speak, apparent at the first glance. It is not enough that on considerable argument it may appear that they do not afford a defence.
Rule 19 sets out the general position that statements of defence may generally deny the allegations set out in the statement of claim. Rule 21(3) modifies that for claims of breach of contract, and requires the allegations of fact made by the plaintiff to be specifically denied.
However, defendants in claims for breach of contract need not identify which particular allegations made by the plaintiff they disagree with. Defendants accused of breach of contract can comply with Rule 21(3) simply by using language which indicates that they disagree with every allegation of fact made by the plaintiff: “the defendant denies each and every allegation of fact in the statement of claim.”