CITATION: C.O. Capital Growth Inc. v. Miller et al, 2018 ONSC 7126
DIVISIONAL COURT FILE NO.: 174/18 DATE: 20181127
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
BETWEEN:
C.O. CAPITAL GROWTH INC., MANDY SBARAGLIA and PETER SBARAGLIA
Peter R. Jervis, for the Appellants
Appellants (Plaintiffs)
– and –
MICHAEL MILLER, JULIA DUBLIN, PETER R. WELSH, AND AYLESWORTH LLP
Peter Wardle and Evan Rankin, for the Respondents Michael Miller, Julia Dublin, and Aylesworth LLP
W.E. Pepall, for the Respondent Peter R. Welsh
Respondents (Defendants)
HEARD at Toronto: November 27, 2018
Conway J. (Orally)
Introduction
[1] The Appellants appeal the decision of Master Short dated February 21, 2018, in which he refused to set aside the Registrar’s administrative dismissal of their action on February 24, 2014.
Background
[2] This action has a long and complex history. It arises out of a Ponzi scheme run by Robert Mander in which the Appellants were found to have been active participants. On May 5, 2010, the Appellants commenced this solicitors’ negligence action against the Respondents. They allege that in acting for them, the Respondents failed to disclose material facts about Mr. Mander and the Ponzi scheme, and had a conflict of interest in representing both Mr. Mander and the Appellants at the same time. The Appellants claim damages of $15 million.
[3] This action was only one of a number of proceedings arising out of the Appellants’ involvement in the Ponzi scheme. In 2009, the Ontario Securities Commission commenced an investigation of the Appellants. Mr. Mander took his life the following year. The investigation against the Appellants resulted in a settlement in March 2013 that, among other things, prohibited them from trading in securities.
[4] In 2010, Morawetz J. appointed a receiver over the assets of the Appellants. The receiver had control over this action but took no steps to move it forward during the receivership period. The receivership was terminated when the Appellants made a consumer proposal in 2011, at which point the Appellants regained carriage of this action. Under the terms of the consumer proposal, the action is being funded by the Appellants’ creditors (the investors in the scheme) and the first $7 million of any proceeds will go towards those investors.
[5] In 2013, one of the plaintiffs Peter Sbaraglia, who is a dentist, faced disciplinary proceedings from the Royal College of Dental Surgeons. Those proceedings were finally disposed of in September 2015, with Peter Sbaraglia pleading guilty to professional misconduct. In August 2013, Peter Sbaraglia commenced proceedings against Canada Life Assurance Company to recover disability benefits. His claim was ultimately denied.
Conduct of this Action
[6] As noted, the Appellants commenced this action in May 2010. The Respondents delivered their statements of defence in July 2010 and pleadings were closed at that time.
[7] Nothing transpired in the litigation until May 2012, when the Registrar issued a status notice warning that the action would be dismissed for delay if it was not set down for trial within 90 days. The Appellants requested a status hearing. They appointed new counsel in this action, Kevin Toyne and Richard Niman of Brauti Thorning Zibarras LLP (“BTZ”) as their lawyers of record.
[8] On November 8, 2012, a status hearing was held before Master Dash. The Appellants’ counsel requested a stay of the action pending resolution of the ongoing OSC proceeding. Master Dash refused to grant a stay, noting that the Respondents had professional negligence allegations hanging over their heads and that the action had to proceed with “some expedition.” He ordered a timetable that required a discovery plan by December 2012, exchange of documents by January 2013, discoveries by May 2013, follow up motions and mediation by November 2013, and the action to be set down for trial by December 13, 2013.
[9] Mr. Toyne entered the dates in his calendar, provided the Appellants with Master Dash’s order and outlined the timetable in an email. The order clearly stated that the action would be dismissed if it was not set down for trial by December 13, 2013.
[10] There were discussions between Mr. Toyne and the Respondents’ counsel in the fall of 2012 and the spring of 2013 about conducting discoveries. Those never took place, as productions had not been completed. Mr. Welsh, one of the defendants, had provided an unsworn affidavit of documents in February 2013. The Appellants made some initial efforts in May and June of that year to obtain documents and prepare an affidavit of documents. However, no affidavit of documents was ever prepared, at that time or at any time thereafter. Indeed, no draft affidavit of documents was provided to Master Short on the motion to set aside.
[11] Mr. Toyne decided that there would need to be an extension of the timetable dates. In June 2013, he requisitioned dates for a motion to extend the date to set the matter down for trial. He failed to follow up on the requisition. On December 13, 2013, Mr. Toyne saw the reminder in his calendar and emailed the Respondents’ counsel that he would be moving for an extension and to set aside the dismissal.
[12] Mr. Toyne scheduled a motion for June 16, 2014 but did not advise the Respondents of this date or prepare any motion materials. He had some correspondence with Peter Sbaraglia in 2014 about reviewing documents. Mr. Toyne admitted that no substantive work had ever been done on an affidavit of documents. He also admitted that the disability and discipline proceedings were priorities for Peter Sbaraglia.
[13] On February 24, 2014, the Registrar granted an order dismissing the action for delay (the “Dismissal Order”).
[14] Mr. Toyne left BTZ in November 2015 and relocated to Winnipeg. In December 2015, another partner at BTZ discovered that the action had been dismissed. LAWPRO counsel was appointed for the Appellants and requested the Respondents’ consent to set aside the Dismissal Order. The Respondents refused to consent.
[15] In September 2016, the Appellants’ new counsel delivered a notice of motion to set aside the Dismissal Order. The motion was heard by Master Short (the “Master”) on July 28, 2017. He released his reasons dismissing the motion on February 21, 2018.
Master’s Decision
[16] The Master conducted a detailed review of the history of the various proceedings, including the OSC, receivership, consumer proposal, discipline and disability proceedings. He noted that the history was complex, that he was not going to review every step taken, that he had reviewed all of the evidence, and that he selected “a few of the key elements to focus upon, in detail, as I regard them as particularly relevant in determining not to restore a multimillion dollar claim that has been administratively dismissed.” He recognized that this was one of the relatively rare cases where there was no reasonable justification to set aside a Registrar’s dismissal order and that the circumstances in this case were “far from ordinary.”
[17] The Master focused on two primary factors. First, after reviewing the history of the Appellants’ involvement in the various proceedings arising out of the Ponzi scheme, he found that the Appellants’ explanation for the delay in this action was neither “acceptable” nor “reasonable” nor “satisfactory”. He noted that the OSC, in its settlement with the Appellants, had contemplated that the Appellants would actively pursue this litigation. The Master commented that the Appellants’ allowing this action to lie dormant for years was “somewhat bewildering.” He rejected the submission that the Appellants’ involvement in other litigation or personal affairs was a sufficient explanation for taking no active steps to move an action forward, citing Gravelle v. Denis Grigoras Law Office, 2013 ONCA 339, at para. 4, and Faris v. Eftimovski, 2013 ONCA 360, at paras. 46 and 50.
[18] He found that the Appellants had “entirely failed to exhibit any due diligence in moving this action forward.” The Master observed that the Appellants had little financial incentive to pursue the action on behalf of the investors. He noted that they had no real monetary stake in the action, no likelihood of ever sharing in any recovery, and no obligation to fund the litigation.
[19] Second, the Master found that Peter Welsh had suffered significant prejudice by changing his legal position on the basis that this action had been dismissed. Mr. Welsh faced another solicitor’s negligence action from an investor in the Ponzi scheme (the Amato action). In September 2015, 18 months after this action had been dismissed, Mr. Welsh settled the Amato action. His uncontradicted evidence, accepted by the Master, was that he would not have settled the Amato action if this action had not been dismissed, as the settlement depleted the insurance that would have been available to cover his defence costs in this action.
[20] The Master did not make any findings of actual prejudice with respect to the other Respondents. However, he noted that the Appellants had maintained this action suspended over the Respondents’ heads for over seven years, quoting the following comments of Sharpe J.A. in 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544:
Another harm that flows from delay, properly relied on by the status hearing judge, is that it leaves the litigant with the claim hanging over its head in a kind of perpetual limbo. Fairness requires allowing parties to plan their lives on the assumption that, barring exceptional or unusual circumstances, litigation time lines will be enforced. "Litigants are entitled to have their disputes resolved quickly so that they can get on with their lives" and "delay multiplies costs and breeds frustration and unfairness" [citations removed].
Jurisdiction and Standard of Review
[21] The parties agree that the Master’s order is a final order that may be appealed to a single judge of the Divisional Court pursuant to s. 19(1)(c) of the Courts of Justice Act, R.S.O. 1990, c. C.43.
[22] The decision of a Master granting or refusing to set aside an administrative dismissal is discretionary. It is entitled to deference and may be set aside only if made on an erroneous legal principle or infected by palpable and overriding error of fact: Prescott v. Barbon, 2018 ONCA 504, at para. 11.
Analysis
[23] The Appellants submit that the Master applied the wrong test for setting aside the Dismissal Order. They submit that he used the more stringent conjunctive test in Marciniak v. Lombard Canada Ltd., 2015 ONSC 5707, which applies on a motion to set aside an express order of a master who dismisses a case at a status hearing.
[24] I reject this submission.
[25] The legal test for setting aside a Registrar’s order dismissing an action for delay was set out in Reid v. Dow Corning Corp.(2001), 11 C.P.C. (5th) 80 (Ont. S.C.) and adopted by the Court of Appeal in Scaini v. Prochnicki, 2007 ONCA 63. Pepall J.A. summarized the test in Prescott, at para. 14, as follows:
(i) Have the plaintiffs provided a satisfactory explanation for the litigation delay?
(ii) Have the plaintiffs led satisfactory evidence to explain that they always intended to prosecute this action within the time limit set out in the rules or a court order but failed to do so through inadvertence?
(iii) Have the plaintiffs demonstrated that they moved forthwith to set aside the dismissal order as soon as the order came to their attention, and
(iv) Have the plaintiffs convinced the court that the defendants have not demonstrated any significant prejudice in presenting their case at trial as a result of the plaintiffs’ delay or as a result of steps taken following the dismissal of the action?
[26] The fourth Scaini factor also has an additional dimension – security of legal position and finality. The court is required to look at whether in light of the delay, the principle of finality and the respondents’ reliance on the security of its position should nevertheless prevail: Prescott, at para. 35-36; Marché d’Alimentation Denis Thériault Ltée. v. Giant Tiger Stores Ltd., 2007 ONCA 695.
[27] The application of the test requires a contextual approach. The court does not require the plaintiff to satisfy each of the four Scaini factors. Rather, the court must consider and weigh all relevant factors to determine the order that is just. The overriding objective is to achieve a result that balances the interests of the parties and takes account of the public’s interest in the timely resolution of disputes: Prescott, at para. 15.
[28] The Master was well aware that this was a motion to reinstate an action following a Registrar’s administrative dismissal order. He specifically noted that this was one of those rare cases in which there was no justification to set aside an administrative dismissal order.
[29] While the Master refers to the Marciniuk case, it is evident that he did so in the course of focusing on two of the Scaini factors, namely, explanation for the delay and prejudice. He considered those two factors to be the most significant ones in deciding whether or not to restore the action.
[30] However, I do not agree that the Master simply applied the test in Marciniuk. Reading his reasons as a whole, it is clear that he followed the required approach set out in Prescott. He took a contextual approach in examining, among other things, the history of the litigation and the status hearing before Master Dash, who rejected the Appellant’s request for a stay and imposed a timetable to expedite the litigation. The Master looked at the indulgences provided to the Appellants, the steps taken (or not taken) by the Appellants since 2010, and the Appellants’ involvement in regulatory and other proceedings. He considered Mr. Toyne’s affidavit evidence. He stepped back and balanced the Appellants’ interest in having the claim heard on its merits against the Respondents’ interest in continuing to have this professional negligence action, which was only at the pleadings stage, suspended over their heads for over seven years. He considered what would be a just order. I see no error in his application of the legal test on the motion.
[31] I also see no legal error in his determination that Mr. Welsh suffered significant prejudice in settling the Amato action in reliance on the Dismissal Order. According to Prescott and Marché, the court is entitled to consider the defendant’s reliance on the security of his position in assessing prejudice. That is precisely what occurred here.
[32] I also see no palpable and overriding error in the Master’s factual conclusions. The Master’s finding that the Appellants had not provided a satisfactory explanation for the delay was open to him on the record. Specifically, he was entitled to reject their explanation (as had Master Dash) that the delay was justified due to the Appellants’ involvement in the OSC, disciplinary and disability proceedings. Further, I see no palpable and overriding error in his factual finding that Mr. Welsh would not have settled the Amato action if this action had not been dismissed.
[33] Finally, the record with respect to the other Scaini factors does not support the Appellants’ position. The Appellants’ motion to set aside the Dismissal Order was brought over nine months after that order was made. They did not move forthwith to set aside the order: see Vaccaro v. Unifund, 2011 ONSC 5318, at paras. 47-48; Gagne v. Yee, 2008 CarswellOnt 2172 (SC), at paras. 35-39.
[34] The Appellants tendered no evidence that they were inadvertent in missing the deadlines imposed by Master Dash. It was implicit in the Master’s reasons that the Appellants’ evidence as to their intention to prosecute this action within the Rules and the time limits set by Master Dash was totally unsatisfactory. In addition, their evidence with respect to prejudice to the Respondents’ ability to present their case at trial consisted of blanket statements (with no particulars) that witnesses remain available and documents have been preserved through related proceedings. In my view, there is no basis to interfere with the Master’s exercise of his discretion in refusing to set aside the Dismissal Order.
Decision
[35] The appeal is dismissed.
[36] I have endorsed the Appeal Book and Compendium as follows: “For oral reasons delivered in court today, the appeal is dismissed. Counsel will be advising the court by November 30, 2018 whether they have an agreement on costs after seeking instructions from their clients, failing which the court will fix costs of this appeal and the motion before Wilton-Siegel J. on June 12, 2018.”
[37] I have further endorsed the Appeal Book and Compendium on November 30, 2018 as follows: “Counsel have now advised the court that they have agreed on costs. In accordance with
their agreement, costs for the motion to quash and for this appeal are payable by the Appellants in the net amount of $6,000 to the Respondent Mr. Welsh and a total net amount of $6,000 to the remaining Respondents, both inclusive of disbursements and applicable HST.”
___________________________ Conway J.
Date of Reasons for Judgment: November 27, 2018
Date of Release: December 3, 2018
CITATION: C.O. Capital Growth Inc. v. Miller et al, 2018 ONSC 7126
DIVISIONAL COURT FILE NO.: 174/18 DATE: 20181127
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
C.O. CAPITAL GROWTH INC., MANDY SBARAGLIA and PETER SBARAGLIA
Appellants (Plaintiffs)
– and –
MICHAEL MILLER, JULIA DUBLIN, PETER R. WELSH, AND AYLESWORTH LLP
Respondents (Defendants)
ORAL REASONS FOR JUDGMENT
Conway J.
Date of Reasons for Judgment: November 27, 2018
Date of Release: December 3, 2018