CITATION: 683153 Ontario Limited v. The Manufacturers Life Insurance Company, 2018 ONSC 2503
DIVISIONAL COURT FILE NO.: 661/17 DATE: 20180417
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
BETWEEN:
683153 ONTARIO LIMITED, 683025 ONTARIO LIMITED, 683018 ONTARIO LIMITED, 683022 ONTARIO LIMITED, SOUTHBAY CORPORATION, SOMERSET RIDGE DEVELOPMENT CORPORATION, JUNSEN LIMITED and WRENLON DEVELOPMENTS LIMITED
Plaintiffs
(Appellants)
- and -
THE MANUFACTURERS LIFE INSURANCE COMPANY, LARLYN PROPERTY MANAGEMENT LTD. and ICORR LONDON INC.
Defendants
(Respondent)
Alfred J. Esterbauer and Sydney Hodge, for the Appellants
David Ward, for the Respondent, The Manufacturers Life Insurance Company
HEARD at Toronto: April 17, 2018
CONWAY J. (Orally)
[1] The plaintiffs appeal the order of Master Graham dated October 11, 2017 dismissing their action for delay following a status hearing pursuant to Rule 48.14 of the Rules of Civil Procedure, R.R.O., Reg. 194.
Overview
[2] The action relates to a series of mortgages that the plaintiffs entered into with The Manufacturers Life Insurance Company (“Manulife”) between 1987 and 1997 on 10 apartment buildings in London, Ontario (the Wonderland and Kipps properties). In 1997, the mortgages went into default. Manulife took possession of the properties and operated them through the two defendant property managers for four years. The plaintiffs redeemed the mortgages, recovered possession of the properties in 2001 and 2002, and subsequently sold the properties.
[3] The litigation commenced in 2000. Four actions were started in 2000 and 2001. In the litigation, the plaintiffs allege that Manulife mismanaged the properties and increased the mortgage debt. They claim an accounting and payment of amounts due to them. Manulife’s defence is that the properties were in a serious state of disrepair and had high vacancy rates and that the repair costs, which were added to the mortgage debt, ultimately benefitted the plaintiffs when they sold the properties.
[4] In 2002, after the Wonderland mortgages had been discharged, Molloy J. granted orders for an accounting in respect of Manulife’s possession of those properties. She directed that the accounting be conducted by way of a reference before a master in Toronto. The plaintiffs had not scheduled the reference by the date of the status hearing in 2017.
[5] In 2003, the plaintiffs sought to scan and examine all of Manulife’s files with respect to the properties (over 90 boxes). The parties negotiated and came to a “scanning agreement” whereby Manulife would provide the files to the plaintiffs, who would in turn provide Manulife with a complete set of the scanned documents, indexed and compatible with Summation software. Manulife sent the files to the plaintiffs in November 2003.
[6] The plaintiffs selected Grant Thornton to conduct the document review. Grant Thornton selected Merlon Consulting to scan the documents. Manulife’s counsel told the plaintiffs’ counsel that he had never heard of Merlon and recommended that counsel use a more recognized litigation support service.
[7] By 2005, the scanning was completed (although, as noted below, the documents were not sent to Manulife until 2010) but Grant Thornton told the plaintiffs that the projected costs for analyzing the documents had increased from $200,000 to $500,000. The plaintiffs looked at other quicker, more cost-effective options during the last half of 2005 into 2006. They started to analyze the documents themselves but then decided to have their counsel conduct the document review, which he did between June 2006 and October 2007.
[8] In late 2007, the plaintiffs requested Manulife’s consent to amend the statement of claim in the first action. Manulife’s counsel advised that the firm had long since closed its file and needed to get it back from storage. The plaintiffs then commenced a fifth action that repeated the claims in the earlier actions and added several additional causes of action. Manulife filed its defence to that action in May 2008. Manulife’s defence pleaded that the plaintiffs had failed to prosecute the action in a timely way.
[9] In October 2009, the plaintiffs set the first action down for trial, prior to oral or documentary discovery.
[10] In December 2009, Manulife had served a motion for various relief, including delivery of the scanned documents and striking the first action from the trial list. In response, the plaintiffs sent the scanned documents to Manulife in April 2010. Shortly after receiving the scanned documents, Manulife advised the plaintiffs’ counsel that the documents were not indexed or in Summation-compatible form.
[11] Manulife’s long motion was eventually heard by Mullins J. in May 2012. She ordered security for costs, consolidated all of the actions, provided that the pleading in the consolidated action would be the statement of claim in the 2007 action, and struck the first action from the trial list, among other things. Manulife sought leave to appeal Mullins J.’s order, which it later abandoned.
[12] In May 2013, the plaintiffs started to move the action forward to discovery. Manulife responded that it required a discovery plan and required the plaintiffs to comply with the scanning agreement. Motions were heard by McKelvey J. in January 2014, who commented that there should be a discovery plan and directed the parties to consult with one another in developing a plan. No such plan has been developed as yet.
[13] In October 2014, Mullins J. transferred the action to Toronto and in February 2015 Manulife delivered its defence to the consolidated action. According to Manulife, it is virtually identical to the one delivered in the 2007 action.
[14] In response to Manulife’s continued request for compliance with the scanning agreement, between 2014 and 2016, the plaintiffs’ counsel had his office re-scan all of the documents, index them and make them Summation-compatible. He delivered a portion of the scanned documents to Manulife in August 2015 and the remainder in September 2016.
[15] In October 2016, the plaintiffs’ counsel sent a timetable for documentary and oral discovery to Manulife. The parties were unable to agree on a timetable. The plaintiffs brought a motion for a status hearing under Rule 48.14. On May 30, 2017, the status hearing took place before the Master for a full day. He released his reasons on October 11, 2017, denying the plaintiffs’ request for a timetable and dismissing the action for delay.
Master’s Decision
[16] The Master set out the relevant portions of Rule 48.14(7) that apply to a status hearing, which requires that the plaintiff show cause why the action should not be dismissed for delay.
[17] He summarized the applicable principles that apply to a status hearing as set forth in the caselaw. In particular, the onus is on the plaintiff to demonstrate why the action should not be dismissed for delay. The test (which is conjunctive) requires the plaintiff to demonstrate both that there was an acceptable explanation for the delay and that, if the action were allowed to proceed, the defendant would suffer no non-compensable prejudice: see Khan v. Sun Life Assurance Co. of Canada, 2011 ONCA 650 and Faris v. Eftimovski, 2013 ONCA 360, at para. 32. The responsibility to move the action along lies chiefly with the plaintiff. However, the conduct of a defendant is also a factor to be considered in determining whether the action should be dismissed for delay or allowed to proceed. The possible dismissal of an action for delay involves a careful balancing between the interests of the parties and society in timely and efficient justice on one hand and in the resolution of disputes on their merits, on the other (quoting Kara v. Arnold, 2014 ONCA 871, at para. 9). It is reasonable to approach the plaintiff’s explanation for the delay in an action on the basis that “the longer the delay, the more cogent the explanation must be”. The prejudice at issue is to the defendant’s ability to defend the action as a result of the plaintiff’s delay, not as a result of the sheer passage of time. A defendant’s lack of display of any sense of urgency undercuts any claim of actual prejudice.
[18] The plaintiffs do not take issue with the Master’s summary of these legal principles, although they submit that he did not sufficiently recognize that prejudice must be significant to the defendant’s ability to defend itself at trial.
[19] The Master analyzed the 17 year period of time since the actions were first started in 2000. He found that the plaintiffs had failed to provide an acceptable explanation for at least seven years of delay in the action – the five year period from January 2005 (when the scanned documents should have been provided to Manulife) to December 2009 (when Manulife brought its motion for various relief) and from October 2014 (the date of Mullins J.’s order) to September 2016 (when the indexed, Summation-compatible scanned documents were finally delivered to Manulife). The Master excluded from the plaintiffs’ delay the period relating to the various motions before Justices Mullins and McKelvey.
[20] The Master found that the primary source of the delay was attributable to the plaintiffs’ scanning of Manulife’s documents. He noted the six and a half year delay from the date of the scanning agreement in 2003 to the first delivery of the scanned documents in 2010 and found that the plaintiffs’ explanation for that delay – that it resulted from the inexperience of the service used and then from problems with the accounting expert that retained that service – fell far short of the “cogent explanation” required in the case of a long delay. He also found that it should have been clear to the plaintiffs’ counsel from Manulife’s response in 2010 that the initial scanned documents were deficient and rejected the explanation of the plaintiffs’ counsel that he did not realize this deficiency until December 2013, holding the plaintiffs responsible for the two year delay from October 2014 to September 2016.
[21] The Master held that the inadequately explained delay was so egregious as to be in itself sufficient grounds for dismissal of the action. However, he also considered whether Manulife would suffer non-compensable prejudice if the action were allowed to proceed. He noted that the long period of unexplained delay gave rise to a strong presumption of prejudice, which the plaintiffs had not rebutted. He also carefully analyzed Manulife’s claim of actual prejudice from the death or unavailability of nine witnesses and rejected the claim of actual prejudice for all but three of them. He found that Manulife would be prejudiced by the 2015 death of Art Brighton, Director of Maintenance with the property manager Larlyn, whose evidence with respect to the poor state of the properties, and the extensive work required to get them into a rentable state, would have been important to Manulife’s defence. He held that the evidence of two other witnesses, John Shed and Rick Alguire, who Manulife had been unable to locate, was relevant to how Manulife managed and made decisions with respect to the properties. The Master determined that the actual prejudice to Manulife in these three witnesses’ unavailability was directly attributable to the plaintiffs’ unexplained delay.
Jurisdiction and Standard of Review
[22] The Master’s final order is appealable to this court without leave: s. 19(1)(c) of the Courts of Justice Act, R.S.O. 1990, c. C.43. His decision pursuant to Rule 48.14, which provides that at a status hearing the court may dismiss the action for delay, is a discretionary one. An appellate court should interfere with a discretionary order of a judge or master if there has been a palpable and overriding error of fact or the decision is made on the basis of an erroneous legal principle: Faris v. Eftimovski, 2013 ONCA 360, at para. 22.
Analysis
[23] The plaintiffs submit that the Master erred in principle by failing to take a contextual approach to the litigation in his application of the status hearing test. I disagree. First, the Master was well aware that the application of the Faris test itself engages a contextual analysis, citing Kara, supra, at para 13. Second, it is eminently clear that the Master looked at the entire context of the litigation, including the claims and defences in the action, its complexity, the overall history of the litigation, the conduct of the parties, any role Manulife played in the delay, the stage that the litigation was at after 17 years, and whether this was simply a document driven case and the relevance of the witnesses’ oral evidence at trial. I reject the plaintiffs’ submission that the Master took a mechanical and rigid approach to the application of the test.
[24] The plaintiffs argue that the Master did not consider that a merits-based determination of cases is to be preferred. I disagree. The Master was aware of the tension between the desirability of having cases heard on the merits and the need for timely and efficient justice. He determined that in the context of this case, the latter consideration prevailed. He committed no error in principle in reaching this conclusion.
[25] The plaintiffs argue in their factum but not in oral argument that the Master erred as he was precluded from dismissing the action in light of the references directed by Molloy J. in 2002. I disagree. He noted that her order was strictly procedural in that it only directed that any accounting would be conducted by a Master. There was nothing to enforce until the reference was conducted and a report issued – which the plaintiffs had not pursued in over 15 years. I agree with the Master that “the fact that references were ordered does not insulate the plaintiffs from the obligation to proceed without unreasonable delay.”
[26] The plaintiffs argue that the Master made palpable and overriding errors in his findings of inexcusable delay and non-compensable prejudice in the following ways:
• He required the plaintiffs to provide an explanation for the delay starting in 2000 instead of 2007 or 2015.
• He did not properly assess Manulife’s conduct in accepting the pace of the litigation and bringing its own motions that delayed the action.
• He focused unduly on the conduct of counsel.
• He improperly speculated that the potential evidence of the three witnesses would be relevant at trial.
[27] In my view, the Master made no palpable and overriding errors in his findings, all of which were open to him on the extensive record before him.
[28] The litigation originally commenced in 2000 and 2001 with respect to the defendants’ alleged conduct under the mortgages and management of the properties from 1997 to 2001. While a new action was commenced in 2007, it essentially repeated the allegations in the earlier actions. The 2012 order simply consolidated the five existing actions. The consolidated action before the Master had originated in 2000 and related to the factual matrix from the 1997 to 2001 period. I see no error in the Master analyzing the delays in the litigation from the date it was first started in 2000. Indeed, the fact that the plaintiffs’ counsel sought the property management files in 2003 undermines their argument that the case really began in 2007 or later.
[29] The Master carefully considered the conduct of Manulife and the plaintiffs’ allegation that Manulife failed to complain about the delay in the litigation. He also considered whether or not Manulife was obstructionist in the litigation and made no finding to that effect. He concluded that Manulife did not contribute to the delay and that its conduct provided no explanation for any delay. There was evidence in the record that Manulife had not sat by idly, that it had pleaded the failure to prosecute the action, that it had tried to bring some order to the litigation and that it had written to the plaintiffs’ counsel on several occasions to try to move it forward. There is no basis to interfere with the Master’s conclusion that Manulife’s conduct did not contribute to or excuse the delay.
[30] The Master did not focus unduly on counsel’s conduct. He appreciated that the plaintiffs, not their counsel, were responsible for the primary decisions on who should be responsible for scanning and reviewing the documents in light of the time and costs involved. This was supported by evidence that the plaintiffs’ counsel took instructions from senior management throughout the litigation.
[31] With respect to the issue of non-compensable prejudice, the Master had evidence before him on which he was entitled to conclude that this was not strictly a document driven case and that the three witnesses had relevant evidence to give on the issues of Manulife’s conduct and decisions during the period it managed the properties. The plaintiffs argue that Manulife had not sought to preserve those witnesses’ evidence significantly prior to the status hearing and that a contextual analysis would have led him to the conclusion that these were not material witnesses and Manulife had not established actual prejudice.
[32] As stated before, the Master did engage in a full contextual analysis of this litigation. It was open to him to determine that given the nature and history of this case, and on the evidentiary record before him, these three witnesses’ evidence would be relevant and that what Manulife had or had not done in the past to secure their evidence did not undermine its claim of actual prejudice.
[33] The plaintiffs have not demonstrated any error of law or fact on the part of the Master in his decision on the status hearing. The appeal is dismissed.
[34] I have endorsed the Appeal Book and Compendium (Volume 1 of 3) as follows: “For oral reasons delivered in court today, the appeal is dismissed. Costs payable to the Respondent by the Appellants in the amount of $15,000, all inclusive.”
___________________________ conway J.
Date of Reasons for Judgment: April 17, 2018
Date of Release: April 19, 2018
CITATION: 683153 Ontario Limited v. The Manufacturers Life Insurance Company, 2018 ONSC 2503
DIVISIONAL COURT FILE NO.: 661/17 DATE: 20180417
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
683153 ONTARIO LIMITED, 683025 ONTARIO LIMITED, 683018 ONTARIO LIMITED, 683022 ONTARIO LIMITED, SOUTHBAY CORPORATION, SOMERSET RIDGE DEVELOPMENT CORPORATION, JUNSEN LIMITED and WRENLON DEVELOPMENTS LIMITED
Plaintiffs
(Appellants)
- and -
THE MANUFACTURERS LIFE INSURANCE COMPANY, LARLYN PROPERTY MANAGEMENT LTD. and ICORR LONDON INC.
Defendants
(Respondent)
ORAL REASONS FOR JUDGMENT
CONWAY J.
Date of Reasons for Judgment: April 17, 2018
Date of Release: April 19, 2018