Executive Summary: Key Legal and Evidentiary Issues

• Characterization of the chip wagon as a “building” under the Building Code Act and the lawfulness of municipal compliance and stop-work orders.
• Allegations that the Township and its Chief Building Official acted in bad faith and negligently, causing business loss to the plaintiff’s chip truck operation.
• Application of settlement privilege to references in pleadings that describe negotiations, alleged admissions, and disagreements over damages and costs.
• Procedural dispute over whether the defendants were out of time to bring a motion to strike after the action was set down for trial.
• Evidentiary assessment of whether a councillor’s text messages constitute an admissible admission binding on the Township or remain protected as part of settlement discussions.
• Interaction between limitation period defences and attempts to rely on settlement negotiations to argue discoverability or tolling of the limitation period.

Facts of the case

2461351 Ontario Inc. (“the plaintiff”) operates a food business using a chip wagon on commercial property in the Township of Brudenell, Lyndoch and Raglan. The property is owned by the company’s director, Ikuyo Higuchi, and her spouse, Ilkyoung Kim, who is also an employee and swore an affidavit in support of the plaintiff’s position. In May 2016, the plaintiff purchased a chip wagon and brought it onto the property. The Township took the position that the unit was a “building” within the meaning of the Building Code Act, 1992 and that any work or operations involving the chip wagon had to comply with the Act. On May 6, 2016, the Chief Building Official issued an Order to Comply requiring the plaintiff to apply for a building permit for structural changes to the wagon. The plaintiff did not apply for a permit. The Township followed up with a letter dated May 17, 2016 reiterating that the chip wagon was a building, listing structural deficiencies that needed correction, and emphasizing that a building permit was required for structural changes. The letter also raised zoning non-compliance and advised that a transient trader licence for the chip wagon would not issue until permits and zoning requirements were satisfied. On May 24, 2016, the Township issued two further orders: a Stop Work Order and an Order to uncover a water line and grey water line installed without a permit. These three enforcement measures together are referred to as the “Compliance Orders.” The plaintiff responded not by applying for a permit, but by commencing an Application on June 10, 2016. In that proceeding, the plaintiff sought a declaration that the chip wagon was not a building under the Act, an order quashing the Compliance Orders, and related declaratory and ancillary relief. Over the summer of 2016, the parties exchanged documents, conducted cross-examinations, and litigated a refusals motion on the Application. After those steps, the matter went dormant for a period.

Procedural history and evolution into an action

While the Application was outstanding, the plaintiff modified the chip wagon, adding four wheels and a trailer hitch to make it a truly mobile unit. The timing of these modifications—whether they were implemented before or after the Compliance Orders—and whether they caused the Township to rescind those orders later is contested. Sometime in 2018, the parties began resolution discussions concerning the Application. The dispute reached Municipal Council, and on May 25, 2018, the Township wrote to say it would take no further action against the plaintiff if the chip stand opened. On June 28, 2018, the Township issued a transient trailer licence covering the remainder of that year, and on June 29, 2018, the Chief Building Official emailed Mr. Kim to say he had been directed by the Township to rescind the Compliance Orders. Unbeknownst to the Township at that time, the plaintiff had already commenced a civil Action by issuing a Statement of Claim on April 30, 2018, although it was not served until August 2018. That Action mirrored the relief sought in the Application (including declaratory relief that the chip wagon is not a building and that the Compliance Orders were unlawful), but added claims for general, special, and punitive damages. The pleadings record then developed over time. The defendants delivered a Statement of Defence in October 2018, and the plaintiff filed a Reply soon after. The plaintiff filed an Amended Statement of Claim in October 2019, the defendants an Amended Statement of Defence later that month, and the plaintiff an Amended Reply in November 2019. By December 2024, both sides had filed further Amended Amended pleadings by consent. In 2019, on a separate motion, the court determined that the most proportionate and efficient course was to stay the earlier Application and proceed solely with the Action, carrying forward the existing documentary production and cross-examination evidence. That decision also recognized that some substantive issues, such as whether the chip wagon is a “building” under the Act, remained live despite the rescission of the Compliance Orders, as there had been no judicial ruling or formal concession on those points. In October 2023, the parties consented to a timetable order governing the remaining steps in the Action. Among other things, the timetable required that any contemplated motion by the defendants to strike a particular settlement-related paragraph from the plaintiff’s Amended Statement of Claim be brought before the Action was set down for trial. The timetable also set a deadline of February 25, 2025, by which the plaintiff was to set the matter down for trial. The plaintiff ultimately did so on February 14, 2025, and a trial date was fixed for April 13, 2026.

The motion to strike and timing dispute

The decision at issue addresses a motion by the defendants to strike specific paragraphs from the plaintiff’s Amended Amended Statement of Claim and Amended Reply. The impugned passages refer to settlement negotiations, alleged admissions by the Township or its representatives, and the parties’ failure to agree on quantum of damages and costs. The plaintiff resisted the motion on several grounds. First, it argued that the timetable order and the fact that the Action had been set down for trial meant the defendants were out of time to bring the motion. Second, it contended that the passages were not protected by settlement privilege and therefore were neither inadmissible nor scandalous. Third, the plaintiff asserted that even if the passages did relate to settlement discussions, they were needed to respond to the defendants’ limitation period defence by explaining the effect of negotiations on discoverability. The defendants countered that they had already served and filed their motion materials before the Action was set down for trial and that both counsel knew the motion was pending while they awaited an available hearing date from the court. In their view, requiring formal leave given this timing would be an unfair technicality rather than a substantive bar to the motion.

Court’s analysis on leave and settlement privilege

The court first addressed the procedural timing issue. Under Rule 48.04 of the Rules of Civil Procedure, once an action is set down for trial, a party requires leave of the court to bring further motions or discovery. The plaintiff pointed to the timetable order requiring the defendants to complete their motion to strike before the action was set down and argued that this deadline had been missed. The judge noted, however, that the language of the relevant paragraph of the Amended Amended Statement of Claim had been in issue for years and that the defendants had in fact delivered their motion materials before the plaintiff set the matter down for trial. Both counsel understood when the trial record was filed that a motion to strike was already in the pipeline, and the parties were merely waiting for a hearing date. In these circumstances, the court found it would be unfair to treat the defendants as out of time simply because the hearing date fell after the set-down date. The court therefore granted leave for the motion to proceed. Turning to the substance, the court applied Rule 25.11(b), which allows the court to strike out or expunge all or part of a pleading if it is scandalous, frivolous, or vexatious. It is well-established that references in pleadings to settlement offers or privileged settlement discussions fall into this category because such communications are inadmissible at trial. The court also relied on Rule 49.06(1), which explicitly provides that the fact an offer to settle has been made shall not be contained in a pleading, and Rule 49.06(2), which prohibits communication of unaccepted offers to the court before liability and relief have been determined. The judge then applied the three-part test for settlement privilege set out by the Ontario Court of Appeal: there must be a litigious dispute; the communication must be made with an express or implied intention that it not be disclosed to the court if negotiations fail; and its purpose must be to attempt to settle the dispute. The first element was clearly met because one of the core issues for trial is whether the chip wagon is a “building” under the Act and the impugned paragraphs expressly referred to attempts to negotiate resolution of that very issue. As to intention and purpose, the court considered that the impugned paragraph in the Statement of Claim explicitly mentioned a long negotiation process, partial settlement, and failure to agree on the quantum of damages. Such content is quintessentially settlement-oriented and plainly not intended to be put before the court if negotiations broke down. Communications that disclose the fact, course, or terms of settlement negotiations, including offers about damages and costs, fall squarely within settlement privilege and have no place in pleadings.

Treatment of alleged admissions and councillor communications

The plaintiff’s impugned pleading asserted that “the defendants admitted” the Compliance Orders were without basis and that the chip truck was not a building. The court examined the source of this alleged admission. One key document was a text message exchange between Mr. Kim and Township councillor Rick Clement in April 2018. In that exchange, Mr. Kim asked if there was “any news from last meeting” before contacting his lawyer. Councillor Clement replied that “council all 100% agrees on resolution,” that “it is a chip truck, not a building,” and that the only remaining issue was a minor variance. The court noted several problems with using this exchange as a binding admission by the defendants. First, Mr. Clement was not a named defendant and there was no clear evidentiary foundation that he, acting alone as an individual councillor, could formally bind the Township. Second, the very wording of the text—referencing “resolution” and occurring in the context of discussions about contacting lawyers—suggested it was part of settlement negotiations. As a result, any apparent admission embedded in this communication was cloaked by settlement privilege and could not properly be pleaded as a free-standing admission for trial. The court contrasted this with an adjacent paragraph (paragraph 51) in the Amended Amended Statement of Claim, in which the plaintiff simply pleads that in or about April 2018 one of the councillors admitted the chip truck was not a building, without framing this as part of settlement discussions. The defendants did not challenge that pleading, and the court observed that such a statement, stripped of negotiation context, is a matter of weight and evidentiary assessment at trial, not something automatically barred from the record. The court also reviewed correspondence from the Township to Mr. Kim in May and June 2018 and concluded that, although the Township had rescinded the Compliance Orders and issued a transient trader licence, those steps did not amount to a clear admission that the chip wagon had never been a building at the time the Compliance Orders were first issued. Administrative actions such as rescinding an order or issuing a licence may have practical implications, but they do not necessarily constitute binding admissions on the central legal question of whether the wagon met the statutory definition of a “building” in 2016.

Limitation period defence and discoverability argument

The defendants raised a limitation defence in their pleadings, and the plaintiff argued that it needed to recount settlement discussions in order to respond, particularly on the issue of discoverability and the running of the limitation period. The court rejected this justification. It held that the triggering events for any limitation analysis were the 2016 Compliance Orders and their alleged impact on the plaintiff’s ability to operate its chip wagon business. Those events prompted the plaintiff to bring the initial Application. The subsequent negotiations and any informal assurances did not change the plaintiff’s knowledge of the underlying harm or the essential facts giving rise to the potential claim. In other words, the plaintiff had sufficient awareness of the material facts in 2016 when it chose to bring an Application rather than an Action. The court acknowledged that there are legal mechanisms by which the running of a limitation period can be suspended or affected by agreement, but noted that plaintiff’s counsel had not explained how that occurred here or identified any specific agreement that altered the limitation period. The judge left open the possibility that the plaintiff might, with a proper legal and factual foundation, seek to amend its pleadings at trial to address limitations issues, but emphasized that reciting privileged settlement communications in the existing pleadings was neither necessary nor appropriate to raise such a defence.

Final ruling on the motion and treatment of costs

Having analyzed the impugned paragraphs, the court concluded that they improperly disclosed privileged settlement negotiations, including descriptions of the negotiation process, references to partial resolution, statements that the parties failed to agree on quantum of damages and costs, and reliance on a councillor’s negotiation-context texts as binding admissions. Such content was held to be scandalous, frivolous, or vexatious within the meaning of Rule 25.11 and directly contrary to the policy of settlement privilege and the specific language of Rule 49.06. The court therefore granted the defendants’ motion to strike. Paragraph 50 of the plaintiff’s Amended Amended Statement of Claim and paragraphs 4, 5, 6, 7, 7(a), and 8 of the plaintiff’s Amended Reply were all struck in their entirety. The judge made clear that this ruling did not prevent the plaintiff from advancing its core theory that the Compliance Orders were unjustified and that the chip wagon was not a building, nor did it prevent the plaintiff from relying on non-privileged statements by councillors or officials, properly pleaded and subject to evidentiary scrutiny at trial. What the ruling did was enforce the boundary that privileged settlement communications, including apparent admissions made only for negotiation purposes, cannot be used as trial evidence through the pleadings. On costs of the motion, the court identified the defendants as the successful party and held that they are presumptively entitled to costs. However, the judge did not fix a dollar amount in this decision. Instead, the parties were encouraged to agree on costs; failing agreement, the court set a schedule for brief written costs submissions or allowed the parties to defer determination of the motion costs to be dealt with together with other outstanding cost claims after trial. As a result, while the defendants clearly succeeded on this motion, the total amount of any monetary award, costs, or damages in their favour cannot yet be determined from this decision alone, because both the merits of the underlying Action and the quantification of any cost awards remain to be addressed in future orders or at trial.