CITATION: Pantziris v. Keane, 2014 ONSC 6488

DIVISIONAL COURT FILE NO.: 138/14

DATE: 20141107

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

SPIROS PANTZIRIS, PAJNA S.A. De C.V. and TEXSPIN S.A. DE C.V.

Appellants

– and –

PATRICK KEANE and PETER PLOWS

Respondents

Frank Bennett, for the Appellants

Sean N. Zeitz, for the Respondents

HEARD at Toronto: October 27, 2014

c. horkins J.

1On February 19, 2014, Master Dash dismissed this action at a status hearing. The appellants appeal this final order and bring a motion to introduce fresh evidence on the appeal.

2The appellants’ motion to introduce fresh evidence and the appeal are dismissed.

The Backgound

3The following background provides context for the motion and appeal.

The Parties and their Dispute

4Spiros Pantziris (“Pantziris”) and his late father owned and operated a company called Spintex Yarns, a business in Ontario that manufactured cotton blend yarns. In 2008, Pantziris decided to establish a recycled yarn business in El Salvador. He incorporated Texspin S.A. De C.V. (“Texspin”) in El Salvador for that purpose and canvassed the market for private investors.

5Pajna S.A. De C.V. (“Panja”) is a company incorporated in Panama and was the majority shareholder of Texspin. Both plaintiffs held shares in Texspin.

6In July 2007, Pantziris obtained funding for the El Salvador business from Cobalt Capital CA Textile Investments, L.P. (“Cobalt”) through a share purchase. A Shareholders Agreement was signed.

7Texspin and Pantziris signed a Professional Services Agreement (“PSA”) under which Pantziris was retained to be the President and Chief Executive Officer of Texspin. Cobalt and Texspin signed a Management Agreement under which Cobalt agreed to provide management services to Texspin.

8Patrick Keane (“Keane”) is the president of 2141258 Ontario Limited, the general partner of Cobalt. From July 2007 until March 2009, Keane and Peter Plows (“Plows”) represented Cobalt on the Texspin Board of Directors.

9By 2008, it was apparent that Texspin had operational and financial problems. This led to the termination of Pantziris under the PSA. The termination was a triggering event under the Shareholders Agreement. Cobalt gave notice to Pantziris that it was exercising its rights under the Shareholders Agreement to require Pantziris to purchase the shares of Texspin held by Cobalt, at a purchase price equal to what Cobalt paid for the shares (US$3,415,094).

10Pantziris disputed Cobalt’s actions and refused to pay. This resulted in an arbitration of the dispute that commenced in September 2010 and ended in March 2011 after numerous hearing days.

The Arbitration Award on the Merits

11The lengthy reasons of the Arbitration Panel were released on December 16, 2011 and are part of the Appeal Book and Compendium. The findings of the Arbitration panel are summarized as follows.

• Pantziris underperformed as CEO of Texspin and this was a material and substantial breach of his obligations under the PSA. As a result, there was cause for his termination.
• Pantziris deliberately mislead the Texspin Board with respect to a receivable and this was a willful act of dishonesty that was detrimental to the interests of Texspin. This was also cause for the dismissal of Pantziris.
• There was no substance to Pantziris’ claim that Plows and Cobalt interfered with Pantziris’ efforts to carry out his role as Texspin’s CEO.
• The decision of the Texspin Board to terminate Pantziris’ as CEO was a reasonable exercise of business judgment by the Board. The Board was composed of Keane and Plows and they acted in good faith and in the best interests of Texspin.
• Cobalt substantially fulfilled its obligations under the Shareholders Agreement.

12The Arbitration Panel ordered Pantziris to pay Cobalt US$3,415,094, representing the price that Cobalt paid for the shares in Texspin.

13The Arbitration Award was recognized and enforced in Ontario as a judgment dated May 1, 2012. Pantziris brought an application seeking to set aside the award. This application was dismissed by the Court on May 1, 2012. Pantziris has not satisfied the judgment against him.

14This action was commenced against Keane and Plows by Notice of Action on August 19, 2010. A statement of claim dated September 3, 2010 followed. The appellants also commenced a related action against Cobalt.

15In their statement of defence, Keane and Plows state that this action is an abuse of process because the same allegations and claims that were advanced and dismissed at the Arbitration are alleged against Keane and Plows in this action.

The Progress of this Action – Before the Dismissal Order

16Master Dash held four status hearings. On the fourth status hearing, he dismissed this action pursuant to rule 48.14(13) of the Rules of Civil Procedure, R.R.O. 1990, Regulation 194.

17The first status hearing was held on May 2, 2013 almost three years after the action was commenced. Mr. Frank, a representative from Mr. Bennett’s office attended the status hearing and advised the Master that he was unable to get instructions from the plaintiffs to set a timetable.

18Master Dash observed that there had been no progress in either action. If the plaintiffs intended to pursue the action, Master Dash stated that they “must demonstrate that intent by delivering an affidavit of documents before the next status hearing”. He stated that there would be no further adjournments and made the following orders:

(1) The status hearing was adjourned to August 29, 2013.

(2) Each plaintiff had to serve an affidavit of documents and provide copies of their documents by June 28, 2013.

(3) If the plaintiffs complied with para. 2, the defendants were ordered to serve their affidavit of documents and copies of all documents by July 26, 2013

(4) The parties had to agree upon and fix a date for examinations for discovery by August 15, 2013.

19The second status hearing was held on August 29, 2013. Once again, Mr. Frank attended on behalf of Mr. Bennett. While the plaintiffs had delivered an affidavit of documents, Master Dash stated that it was “clearly deficient”. The Master ordered that the plaintiffs’ affidavit of documents be “rectified before the next status hearing.” The status hearing was adjourned to November 4, 2103. Master Dash recorded that he would order the balance of the timetable and consolidate the two actions at the November 4 attendance. The Master directed that Mr. Bennett was “to personally attend the status hearing” on November 4, 2103.

20On October 8, 2013, Pantziris was petitioned in bankruptcy. Pantziris consented to the court order that was granted by Senior Regional Justice Morawetz. Case management of the action in Commercial court was assigned to Justice Newbould and then Justice Brown.

21The third status hearing was held on November 4, 2013. Counsel for the Trustee and the defendants attended. Mr. Bennett did not attend. Master Dash recorded the fact that Pantziris had been petitioned into bankruptcy and that his assets including the cause of action and his shares in the two companies had devolved to the Trustee. As a result, this personal action was stayed under rule 11.01. Master Dash stated the following in his endorsement:

The trustee must decide before the next hearing whether to continue the action and if so, certain steps must be taken before the next status hearing … and all parties must be prepared to set a timetable (unless the action is to be dismissed).

There will be no further status hearing for any reason whatsoever. If the trustee is not prepared to proceed by the next status hearing the plaintiffs are at risk of dismissal under rule 48.14(13)(b).

22The status hearing was adjourned to February 19, 2014 before Master Dash. If the plaintiffs were going to proceed, the Master ordered that they obtain an Order to Continue under rule 11.02 and serve and file a notice of change of solicitors.

The Trustee’s First Report to the Court

23On December 12, 2013, the Trustee appeared before Justice Newbould to schedule a date for a motion. Pantziris and his counsel Mr. Bennett did not attend. The purpose of the Trustee’s motion was to seek the court’s direction and approval for the dismissal of this action and the companion action against Cobalt.

24Justice Newbould ordered the Trustee to serve the motion record by January 6, 2014 and to schedule another 9:30 a.m. chambers appointment no later than January 13, 2013. The court did not set a date for the Trustee’s motion.

25Mr. Bennett, counsel for Pantziris, was aware of the Trustee’s plan and the motion the Trustee was bringing.

26This action against Keane and Plow and the companion action against Cobalt were the only assets of Pantziris in the bankruptcy. In the Trustee’s First report to the Court dated January 2, 2014, the Trustee recommended that the actions be dismissed. The Trustee relied on a legal opinion dated November 12, 2013 from Blaney McMurtry LLP.

27The First Report reviewed the Arbitration award, the resulting judgment against Pantziris, this action and the action against Cobalt. The legal opinion is also reviewed in the report. Relying on the legal advice, the Trustee provided a report to the Court regarding the Keane and Cobalt actions. A summary is as follows:

• The Actions will not likely produce a monetary award for the Bankrupt estate.
• The Cobalt action is statute barred.
• The Keane action will likely be barred due to res judicata and abuse of process by re-litigation (due to the arbitration). Cause of action estoppel “effectively bars the Keane action in its entirety”.
• Among the causes of action in the Keane statement of claim, three were personal and did not vest in the Trustee: conversion, assault, and defamation.
• The Trustee seeks an order dismissing all causes of action except the causes of action that were personal.
• Subject to the defendants’ consent, the Trustee proposed that the actions be dismissed and that Pantziris have 30 days to elect to proceed with the personal cause of action, otherwise they would be deemed dismissed.
• Mr. Bennett had expressed an opinion that the causes of action were tenable and that the Trustee had a duty to protect same. As a result, the Trustee required the Court’s direction.

28An appointment was set in Commercial Court for January 13, 2014. By this point the matter had been assigned to Justice Brown. Counsel for the Trustee attended as did Mr. Bennett for Pantziris. Justice Brown declined to set a date for the Trustee’s motion. He ordered that responding motion material be served by February 10 and that the parties attend before him on February 28, 2014 to discuss the next steps for the motion. Justice Brown also made the following note in his endorsement: “In the meantime, an extension will have to be sought at the status hearing.”

29As directed by Justice Brown, Pantziris served a responding affidavit dated February 6, 2014.

motion to adjourn fourth status hearing

30On the return of the fourth status hearing, the Trustee brought a motion before Master Dash to adjourn the status hearing until the judge on the Commercial Court list provided directions to the Trustee regarding the action. The Trustee’s Motion Record was served on Mr. Bennett.

31Mr. Bennett was going to be on vacation the day of the fourth status hearing and had told the Trustee’s counsel that he did not have standing to attend in any event. He did not arrange for another counsel to attend on his behalf.

32On February 18, 2014, the Trustee’s counsel emailed Mr. Bennett and asked if there was anything he wanted him to bring to the attention of Master Dash. Counsel also stated that Mr. Bennett did have standing to attend the status hearing for the following reasons:

1. You represented the plaintiffs prior to the bankruptcy of Mr. Pantziris and are still technically on the record for them.

2. You were instructed by Master Dash to attend personally at the status hearing on August 29, see attached endorsement of Master Dash dated August 29, 2013.

3. As noted in our motion materials some of the causes of action in the within action are personal and remain with your client.

4. You are opposing the Trustee’s motion for directions and obviously have some interest in the within action.

33The Trustee’s Motion Record seeking an adjournment provided Master Dash with a full review of the steps taken in Commercial Court and the status of the matter before Justice Brown. A complete copy of the Trustee’s Motion for Directions was attached as an exhibit. This included the Arbitration decision, the Trustee’s First Report to the Court and the legal opinion from Blaney McMurtry.

The Decision to dismiss the action

34At the fourth status hearing, the defendants objected to the Trustee’s request for an adjournment. Master Dash refused to grant the adjournment and dismissed the action with oral reasons.

35The Master reviewed the fact that the action was commenced in August 2010 and in May 2013, at the first status hearing, there was “absolutely no explanation whatsoever of what has transpired in this action”.

36It is clear from the reasons that Master Dash expected Mr. Bennett to attend the fourth status hearing. He had previously ordered him to attend.

37Master Dash reviewed the lack of progress that had been made in the action, what transpired at each status hearing and the orders that he made on each occasion (all of which are reviewed above in my reasons). He stressed that he had reluctantly adjourned the previous status hearing with the warning that there would be no further adjournments.

38In particular, at the November 4 status hearing, the Master directed that the Trustee had to decide whether to continue with the action. If the Trustee was not prepared to proceed by the date of the next status hearing, he told the parties that “the plaintiffs are at risk of dismissal under rule 48.14 (13)(b)”. When he adjourned the November 4 status hearing, he said that two things had to be done: (1) obtain an order to continue under rule 11.02 in favour of the Trustee and (2) serve and file a notice of change of solicitors. Neither was done.

39The Master stated that the Trustee “had formed the opinion that there’s no merit to this action and that it should be dismissed”. As well, the Master acknowledged that the Trustee was seeking directions from the Court on the Commercial list “because of some assertion by Mr. Pantziris that perhaps this action should proceed, that he might have some residual claims and that there was merit to the claim”.

40The Master noted that the “bulk, if not all of the claims, had devolved upon the trustee.” Mr. Bennett remained solicitor of record for the plaintiffs and had never brought a motion to “get off the record” and the Trustee had not “filed a notice of change of solicitors”.

41As well, the Master observed that the corporate plaintiffs are not bankrupt and Mr. Bennett continues to represent them “even though Mr. Pantziris appears to have the controlling interest in the corporate plaintiffs”. In these circumstances that Master stated:

Mr. Bennett has not appeared today, nor has Mr. Pantziris personally, or anybody on his behalf, in order to make representations that the action ought not to be dismissed for delay. As stated, Mr. Bennett remains lawyer of record, and he has not gone off the record.

Of course, we also have plaintiffs that are not bankrupt and Mr. Bennett, of course, continues to represent them, even though Mr. Pantziris appears to have the controlling interest in the corporate plaintiffs. And, again, Mr. Bennett has not attended to seek a timetable in favour of the corporate plaintiffs.

42The Master stated that the Trustee had proceeded with diligence to seek directions from the Commercial Court. The Master noted that Mr. Bennett had attended the last appearance in Commercial Court and was aware that the Trustee was asking for an adjournment of the status hearing. The Master noted that Mr. Bennett “surely … would have known that [the adjournment] would be opposed by the defendants.”

43The Master stated as follows:

He would have known the date of the status hearing, he’s failed to attend, there’s been no explanation of the delay between August 19, 2010, in fact, even since the pleadings were closed in June of 2010, up until October 2013, when there was a bankruptcy. The failure to explain this delay prior to the trustee’s interests cannot be laid at the feet of the trustee, it can only be laid at the feet of Mr. Pantziris and his counsel who failed to address the issues required on a status hearing.

44The Master set out the two prong test under rule 48.14(13) as set out in Faris v Eftimovski, 2013 ONCA 360 at para. 32 (“Faris”). The onus is on the plaintiffs to demonstrate why the action should not be dismissed for delay. The plaintiffs must demonstrate that there was an acceptable explanation for the delay and establish that if the action were allowed to proceed, the defendants would suffer no non-compensable prejudice.

Motion to File Fresh Evidence

45Pantziris brings a motion to file fresh evidence.

46Pursuant to s. 134(4)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, the Divisional Court, on an appeal, may receive fresh evidence or new evidence. The test for receiving fresh evidence is set out in R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759 and Sengmueller v. Sengmueller (1994), 1994 8711 (ON CA), 17 O.R. (3d) 208, (C.A.). The court will consider the following criteria (as set out in Sengmueller and recently applied in Centre City Auto Sales Inc. v. Kalsatos, 2013 ONCA 373 at para. 3):

• Is the evidence credible?
• Could the evidence have been obtained prior to trial through the exercise of reasonable diligence?
• If the evidence were admitted, would it likely be conclusive of an issue in the appeal?

47The motion to file fresh evidence is divided into two parts: evidence before the February 19, 2014 status hearing and evidence that occurred after the hearing. Pantziris sets this evidence out in an affidavit that he swore on October 8, 2014.

48Almost all of the evidence in the affidavit deals with evidence that was in existence before February 19, 2014. As explained below, Pantziris has not met the test for filing fresh evidence.

49Dealing with evidence that occurred before February 19, 2014, Pantziris seeks to present evidence that he says the Trustee did not provide to Master Dash. The Pantziris affidavit reviews the nature of the dispute between the parties, according to Pantziris, the arbitration that took place and events in the bankruptcy. Some of this evidence was provided to the Master (the nature of the dispute and the arbitration). To the extent that the evidence was not provided to the Master, it could have been submitted “through the exercise of reasonable diligence” and it was not. Mr. Bennett had been directed to attend the status hearing and did not. While he was on vacation on February 19, 2014, he could have arranged for Pantziris to file an affidavit and to have another counsel attend in his place. He had other counsel attend for him at the first and second status hearings. Pantziris and his counsel were aware of the Trustee’s position. They had a copy of the Motion for Directions and knew that this was part of the motion record before Master Dash.

50Mr. Pantziris complains that the Trustee’s lawyer asked Mr. Bennett the day before the status hearing if there was anything Mr. Bennett wanted the Trustee’s counsel to bring to the attention of the Master. He says this gave Mr. Bennett no time to respond. I disagree. The risk that the action would be dismissed was known when Master Dash issued his November 4, 2013 endorsement.

51From the start of the action there was a pattern of non-compliance and it ought to have been crystal clear to Pantziris and Mr. Bennett that this was the last chance to convince the Master that the action should proceed. As Master Dash stated, on November 4, 2013, “there will be no further status hearing for any reason whatsoever” and the plaintiffs were “at risk of a dismissal under rule 48.14 (13)(b).”

52The evidence in the affidavit about what happened after the status hearing is brief. The affidavit includes a reference to what happened in Commercial Court after Mater Dash dismissed the action. First, this does not assist Pantziris on this appeal. It is not conclusive of the issue on this appeal. In any event, what transpired in Commercial Court after the dismissal is a matter of record. As a result, this part of the affidavit is not necessary.

53The motion to introduce fresh evidence is dismissed.

The Appeal is Dismissed

54The standard of review on an appeal from the order of a master is the same as that for an appeal from an order of a judge: correctness for an error of law, palpable and overriding error for an error of fact, and correctness or palpable and overriding error for a question of mixed fact and law, depending on whether there is an extricable legal principle (none is argued on this appeal) (see Zeitoun v. Economical Insurance Group, 2009 ONCA 415 at para. 1; Wellwood v. Ontario (Provincial Police), 2010 ONCA 386 at para. 28).

55Pantziris argues that the Master erred in fact and law. In his factum he explains the ground of appeal as follows. Pantziris states that Master Dash was aware that Justice Brown made an order on January 13, 2014 “requiring the trustee in bankruptcy to adjourn the matter at the Status Hearing as Justice Brown was seized of the case”. Instead the Master dismissed the action. Pantziris says that Master Dash usurped Justice Brown’s role and took the case away from Justice Brown. He characterizes Justice Brown’s endorsement as an order that the status hearing be adjourned.

56There is no dispute that Master Dash correctly stated the test for a dismissal rule 48.14(13) as set out in Faris.

57The appeal is premised on Pantziris’ argument that Justice Brown ordered the Trustee to obtain an adjournment of the status hearing. This is not correct. Justice Brown’s endorsement ordered (1) Pantziris to serve and file his responding materials to the Trustee’s motion for directions, and (2) the parties were to attend before Justice Brown on February 28, 2014.

58Justice Brown then made the following note about the upcoming status hearing: “In the meantime, an extension will have to be sought at the status hearing.” Justice Brown did not order the Trustee to obtain this extension nor did he say that the Master had to grant an extension. This is consistent with Reasons for Decision that Justice Brown released in this action on July 4, 2104 dealing with the Trustee’s Motion for Directions. It is clear from these reasons that Justice Brown was of the view that it was open to Master Dash to consider a dismissal of the action for delay under rule 48.13.

59At the final status hearing, Master Dash was aware of Justice Brown’s January 13, 2014 endorsement and referred to it in his reasons. The Trustee asked for an adjournment and fully informed the Master of the pending motion in Commercial Court.

60Master Dash referred to the fact that Mr. Bennett attended the hearing before Justice Brown on January 13, 2014. As he states, Mr. Bennett was “fully aware that a request for an extension of this status hearing was to be sought today” and that it would be “opposed by the defendants”. “He failed to attend” and “there’s been no explanation of the delay”.

61In my view, the Master correctly stated the law as set out in Faris and then applied it to the facts before him. In doing so, he identified the long pattern of delay and failure to follow his orders. The Master made it clear in his November 4, 2013 endorsement that there would be no adjournments of this fourth status hearing.

62In the circumstances of this action, the Master was not required to adjourn the status hearing. There was no palpable and overriding error of fact or mixed fact and law.

63The appeal is dismissed.

64The defendants are entitled to costs. They seek partial indemnity costs of $13,978.88 all inclusive. I fix their costs at $8,000 all inclusive. This amount is fair and reasonable.

___________________________ C. Horkins J.