904778 Ontario Limited v. OneWorld Energy Inc., 2014 ONSC 2539

CITATION: 904778 Ontario Limited v. OneWorld Energy Inc., 2014 ONSC 2539

DIVISIONAL COURT FILE NO.: 463/13

DATE: 20140512

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: 904778 Ontario Limited, Plaintiffs (Appellants)

AND:

OneWorld Energy Inc., Defendants (Respondents)

BEFORE: Lederman J.

COUNSEL: Alfred J. Esterbauer, for the Plaintiffs (Appellants)

Matthew Diskin, for the Defendants (Respondents), William Wallace and Brian McIlroy

D. Magisano, for the Trustee in Bankruptcy of the Defendants, OneWorld Energy Inc. and Green Breeze Energy Inc.

HEARD: April 22, 2014

ENDORSEMENT

[1] This is an appeal by the plaintiffs from the order of Master Haberman dated September 9, 2013, dismissing the action at a status hearing.

[2] The standard of review is that the appellate court should only interfere with the decision of a Master dismissing the action for delay if there has been a palpable and overriding error of fact or the decision was made on the basis on an erroneous legal principle.

[3] The plaintiffs (appellants) submit that the Master did not apply the correct test for the dismissal of an action under rule 48.14(13) and also that she made palpable and overriding errors in her assessment of the evidence and in the application of the test. In particular, it was argued that the Master failed to undertake a contextual assessment and thereby erred in principle by misconstruing the test and failing to make the order that was just in the circumstances.

[4] The Ontario Court of Appeal in a number of decisions, the latest being Faris v. Eftimovski 2013 ONCA 360, has stated that on a rule 48.14(13) status hearing, the onus is on the plaintiff to show cause why the action should not be dismissed for delay and demonstrate that:

(a) There is an acceptable explanation for the litigation delay;

(b) If the action is allowed to proceed, the defendant would suffer no non-compensable prejudice.

[5] The test is conjunctive, not disjunctive. The plaintiff must satisfy both parts of the test.

[6] The purpose of rule 48 is to enable the court to control the pace of litigation, prevent abuse of its processes, and to ensure that disputes are resolved in an effective manner. It is the plaintiff who bears the primary responsibility for its progress and the consequences of conducting the action in a dilatory manner.

[7] At para. 41 of the Faris decision, the Court of Appeal stated:

The onus placed on the plaintiff under rule 48.14(13), therefore, is mandated not only by the plain wording of the rule but also by the greater severity of the plaintiff’s delinquency in pursuing its claim. In other words, at this juncture, the emphasis on the objectives expressed in rule 1.04(1) to “secure the just, most expeditious and least expensive determination of every civil proceeding on its merits” must necessarily shift towards ensuring that disputes be resolved expeditiously and in a time-efficient manner. (Emphasis added).

[8] As MacKinnon J. stated in Deverett Professional Corp. v. Canpages Inc. 2013 ONSC 6954 at para. 16 “. . . it is that ‘shift’ which supports the test applicable at a status hearing.” In Deverett, MacKinnon J. confirmed at para. 6 that the Master, who had followed the two part conjunctive test, was correct and stated that the “balancing approach” decisions, giving some consideration to the principle in favour of cases being determined on the merits, have been overtaken by recent decisions of the Court of Appeal.

[9] In the instant case, the explanation for delay given by the plaintiffs (appellants) at the status hearing was that the action was complex involving multiple parties; that bankruptcies of the four corporate defendants had taken place; that one of the individual plaintiffs had died and the executor delayed instructions in that regard; and that one of the defendants threatened a motion for security for costs that never materialized.

[10] However, as the Master correctly stated at para. 75 of her Reasons: “ [W]hat this all comes down to is the evidence”. She found that the evidence presented by the plaintiffs was wholly inadequate. They presented evidence only in the most perfunctory way, through a law clerk’s affidavit, and adduced no direct evidence to back up their excuses for the delay.

[11] On a close examination of what was before her by way of evidence, the Master concluded as follows:

(a) The bankruptcies of party defendants could be a relevant cause for delay; however, they were not in this case as no evidence was adduced by the plaintiffs of any efforts made or any consideration given by them to obtaining orders to lift the stays and to continue the actions at least as against the two most recent bankrupts (Huron Tract Holdings Inc. and Miser Lighting Inc. had made assignments into bankruptcy prior to the commencement of the action). Further, as the plaintiffs only became aware of the two newer bankruptcies at about the same time as the Status Notice, these bankruptcies could not have been a cause of delay prior to that time. Moreover, it appears as if the plaintiffs are pursuing their claims against them in the bankruptcy proceedings.

(b) With respect to the death of the plaintiff, Dory Semaan, in July 2011, no steps were taken to appoint a litigation guardian for the estate. Plaintiffs’ counsel submitted that there was difficulty in obtaining instructions from the estate executor but no details as to the nature and timing of those difficulties were given. The Master concluded that it is not enough to merely say that there were difficulties getting instructions, when more than a few months’ delay ensues;

(c) With respect to the potential motion for security for costs, the plaintiffs should have concluded that with the passage of time, it was not likely to happen and therefore that could not be an acceptable reason for delay.

[12] Even though the Master said at para. 74(5) that “compelling and convincing” evidence was required to satisfy the test, a fair reading of her Reasons suggests that she knew that the first branch of the test to be an “acceptable explanation” for the delay. At paragraphs 100, 101, 102, 106 and 110, the Master repeatedly emphasized that no acceptable explanation for delay was provided by the plaintiffs. Because the test is conjunctive, it was unnecessary for her to consider the second branch of the test relating to prejudice.

[13] It is clear from her Reasons that the Master was alive to the principles set out by the Court of Appeal decisions, namely, that although there appears to have been a pendulum swing in respect of applying rule 48.14 leading to a different test and a different emphasis when the rule 1.04 balancing act is performed, the approach has to be sufficiently flexible to accommodate unexpected or unusual contingencies. She stated the following at paras. 71 – 72:

[71] A different panel of the Court of Appeal adopted a similar but not identical approach in 1196158 Ontario Inc. v. 6274013 Canada Limited et al. 2012 ONCA 544, released a few weeks after Feris [sic]. Once again, the court speaks of the balancing act the court must perform pursuant to Rule 1.04, highlighting the challenge of finding the right balance between its two potentially competing goals. This panel appears to have taken a more tempered stance, however, commencing on the need to ensure that the approach taken by the court is sufficiently flexible to leave room for unexpected or unusual contingencies.

[72] As I read this, the Court of Appeal means to remind us to avoid taken a rigid approach by devising strict Rules that apply across the board to all plaintiffs at all times. As Sharpe J.A. stated:

We must allow some latitude for the unexpected and unusual contingencies that make it difficult or impossible for a party to comply. We should aim to avoid a purely formalistic and mechanical application of time lines that would penalize parties for technical non-compliance and frustrate the fundamental goal of resolving disputes on their merits.

[14] The Master also made it clear at para. 74(6) that:

Though the approach favoured when applying Rule 48.14(1) is to lean towards an expeditious resolution of actions, the court must be wary that it does not take a formulaic approach and discount unexpected contingencies. At the end of the day, the court must make the order that is just, on a case by case basis. This requires some flexibility by the court when dealing with unexpected and unusual contingencies.

[15] In the end, it cannot be said that the Master erred in principle in articulating the requisite test. With that in mind, she conducted a detailed review of the way this litigation was prosecuted. She found that the evidence presented by the plaintiffs (appellants) at the status hearing was inadequate and emphasized the fact that no direct evidence was filed by any of them to explain the state of the litigation, despite the fact that the onus was on them to do so. Accordingly, the Master made no errors of law or palpable and overriding errors of fact that would justify a decision to set aside the exercise of her discretion.

[16] The appeal is therefore dismissed. However, in light of the fact that the claims against the corporate defendants have been stayed by operation of bankruptcy law, it should be made clear in the order that the action is dismissed only as against the individual defendants.

[17] The individual defendants (respondents) will have their costs of this appeal fixed at $5,000 all inclusive, payable by the plaintiffs (appellants).

Lederman J.

Date: May 12, 2014