Court File and Parties

COURT FILE NO.: 3194/14 DATE: 20190705 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1682558 Ontario Limited and Osman El-Hindi, Plaintiffs AND: Zohar Salman, Barbara Blew, and Lerners LLP, Defendants

BEFORE: Justice R. Raikes

COUNSEL: Nicolas Businger, Counsel for the Plaintiffs Mavis J. Butkus, Counsel for the Defendants, Blew and Lerners LLP

HEARD: June 14, 2019

Endorsement

[1] The plaintiffs seek an order directing the Registrar not to issue an Order Dismissing Action for Delay and to set a timetable to complete the remaining steps before the action is set down for trial. The plaintiffs propose a timetable which would extend the time to set the action down for trial to April 24, 2020.

[2] This action was commenced by Statement of Claim issued April 29, 2014. This motion was brought April 25, 2019, four days before the expiry of five years from the commencement of the action. The parties have not agreed on a timetable. Absent an order permitting the action to proceed, it will be dismissed for delay pursuant to R. 48.14.

Law

[3] Rule 48.14(7) states:

At a status hearing, the plaintiff shall show cause why the action should not be dismissed for delay, and the court may,

(a) dismiss the action for delay; or

(b) if the court is satisfied that the action should proceed,

(i) set deadlines for the completion of the remaining steps necessary to have the action set down for trial or restored to a trial list, as the case may be, and order that it be set down for trial or restored to the trial list within a specified time,

(ii) adjourn the status hearing on such terms as are just,

(iii) if Rule 77 may apply to the action, assign the action for case management under that Rule, subject to the direction of the regional senior judge, or

(iv) make such other order as is just.

[4] The test under Rule 48 has two parts. The plaintiff must demonstrate that: (1) there is an acceptable explanation for the delay in prosecuting the action; and (2) if the action were allowed to proceed, the defendant would suffer no non-compensable prejudice: Faris v. Eftimovski, 2013 ONCA 360 at para. 42.

[5] In Cedrom-SNI Inc. v. Meltwater Holding, 2017 ONSC 3387, Master Graham summarized the guiding principles that have emerged from cases since Faris at para. 6:

1. The onus is on the plaintiff to demonstrate why the action should not be dismissed for delay. The test requires the plaintiff to demonstrate that there was an acceptable explanation for the delay and establish 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 [see above]).
2. The test is conjunctive, not disjunctive. Even if the plaintiff can provide a satisfactory explanation for the delay, the action will be dismissed if there would be prejudice to the defendant. And if the plaintiff is not able to provide a satisfactory explanation for the delay, it is still open to the court to dismiss the action even if there is no proof of actual prejudice to the defendant. (See: 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544 at para. 33).
3. The responsibility to move the action along lies chiefly with the plaintiff. (See: Faris, supra, at para. 33) 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. (See: Carioca’s Import & Export Inc. v. Canadian Pacific Railway, 2015 ONCA 592 at para. 53)
4. 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 the one hand and in the resolution of disputes on their merits on the other. (See: Kara v. Arnold, 2014 ONCA 871 at para. 9)
5. There is little to be gained in debating whether there is a bright line between the “contextual approach” applicable to motions to set aside registrar’s dismissal orders (per Scaini v. Prochinicki, 2007 ONCA 63 at para. 23) and the approach taken in Faris, supra, to status hearings. In considering the reasonableness of any explanation for delay, the status hearing court will almost invariably engage in a weighing of all relevant factors in order to reach a just result. (See: Kara, supra, at para. 13)
6. 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”. (See: Kara, supra at para. 17)
7. Settlement discussions can constitute a reasonable explanation for litigation delay. A party should not be penalized for not pursuing the costly steps of litigation while engaged in the settlement process that was ultimately unsuccessful. (See: Apotex Inc. v. Relle, 2012 ONSC 3291 at paras. 7, 50 and 51)
8. The prejudice at issue is to the defendant’s ability to defend the action as a result of the plaintiffs delay, not as a result of the sheer passage of time. (See: MDM Plastics Ltd. v. Vincor International Inc., 2015 ONCA 28 and Carioca’s Import & Export Inc., supra at para. 57)
9. A defendant’s lack of display of any sense of urgency undercuts any claim of actual prejudice. (See: Aguas v. Rivard Estate, 2011 ONCA 494 at para. 19 and H.B. Fuller Co. v. Rogers, 2015 ONCA 173 at para. 42)

[6] In Slota v. Kenora-Rainy River Child and Family Services, 2019 ONSC 126 at para. 31, Kimmel J. summarized the following additional principles derived from decisions of the Ontario Court of Appeal under R. 48.14:

a. The judicial officer presiding over a status hearing is not to aim to fix a tardy action but to dismiss it unless there is cogent evidence on the record establishing a reason not to (see Wellwood v. Ontario Provincial Police, 2010 ONCA 386, 102 O.R. (3d) 555).

b. Wellwood, supra, does not require the plaintiff to adduce affirmative evidence to rebut the presumption of prejudice that arises from the passage of time in prosecuting an action or from the expiry of a limitation period. Rather, in evaluating the strength of the presumption of prejudice, the master or motion judge must consider all of the circumstances, including the defendant’s conduct in the litigation (see MDM Plastics Ltd. v. Vincor International Inc., 2015 ONCA 28, 124 O.R. (3d) for 20, at para. 32, citing Aguas v. Rivard Estate, 2011 ONCA 494, 107 O.R. (3d) 142 at paras. 18 – 19).

c. The onus is on the plaintiff to show that the defendant is not prejudiced by the delay. Prejudice to the defence that exists regardless of the plaintiff’s delay is not relevant. Furthermore, the defendant cannot create prejudice by failing to take steps to defend the case or to do something that it reasonably could or ought to have done, such as interviewing witnesses or conducting surveillance or otherwise preserving relevant evidence (see Labelle v. Canada (Border Services Agency), 2016 ONCA 187, 346 O.A.C. 155 at paras. 16 and 23).

d. According to 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544, 122 O.R. (3d) 67, at para. 19, failure to enforce rules and orders undermines public confidence in the capacity of the justice system to process disputes fairly and efficiently. On the other hand, procedural rules are the servants of justice not its master. We must allow some latitude for unexpected and unusual contingencies that make it difficult or impossible for party to comply. We should strive to avoid a purely formalistic and mechanical application of timelines that would penalize parties for technical non-compliance and frustrate the fundamental goal of resolving disputes on their merits. As Laskin J.A. stated in Finlay v. Van Paassen, 2010 ONCA 204, 101 O.R. (3d) 390 (Ont. C.A.), at para. 14: “the Rules and procedural orders are construed in a way that advances the interests of justice, and ordinarily permits the parties to get to the real merits of their dispute.”

Litigation History

[7] The plaintiffs’ claim arises from a business transaction between Mr. El-Hindi and the defendant, Mr. Salman. They were shareholders in the plaintiff company. Mr. Salman loaned the company $71,500 which was secured by a mortgage registered against real property owned by the company. The plaintiffs allege that in late 2011 or early 2012, the company agreed to purchase all of the shares and interest held by Salman in the company for $300,000. As part of that purchase, Salman’s mortgage was to be purchased by the Company and discharged from title. The defendant, Barbara Blew of Lerners LLP was jointly retained to draft a redemption agreement. It is alleged that she failed to include provisions in the redemption agreement to transfer Salman’s loan to the company and to discharge his mortgage from title. Salman later refused to discharge the mortgage which interfered with a subsequent loan transaction resulting in damages.

[8] Although the Statement of Claim was issued on April 29, 2014, it was not served until October 23, 2014. The defendants, Blew and Lerners LLP (hereafter “the Blew defendants”) delivered their Statement of Defence on December 16, 2014. No cross-claim is asserted by them against the defendant, Salman.

[9] Salman was resident in Atlanta, Georgia when the action was commenced. He has since moved to Israel. The plaintiff obtained an order dated March 26, 2015 validating service on Salman. Salman delivered his Statement of Defence, Counterclaim and Cross-Claim on May 19, 2015.

[10] The plaintiffs delivered their Reply and Defence to Counterclaim on June 8, 2015. The Blew defendants delivered their Defence to Cross-claim more than a year later on July 14, 2016. In any event, the pleadings were complete by July 2016.

[11] The plaintiffs and Blew defendants exchanged unsworn affidavits of documents and productions in April 2015.

[12] The examinations for discovery of Ms. Blew and Mr. El-Hindi took place on November 29, 2017. Prior to those examinations, counsel for the Blew defendants wrote letters dated August 10, 2016, November 24, 2016 and June 23, 2017 seeking discovery dates. Lacking any meaningful reply, the Blew defendants brought a motion on July 26, 2017 to compel delivery of an affidavit of documents by the defendant, Salman, and to compel El-Hindi and Salman to attend for examinations for discovery. The motion was adjourned on August 9, 2017 at the request of counsel for Salman to August 22, 2017. Later that same day, counsel for the Blew defendants was advised by email that the plaintiffs and Salman had settled both the action as against Salman and his counterclaim. Counsel for Salman confirmed the settlement by email and advised that Salman “will also be withdrawing its cross-claim against your clients. I trust that your clients will accept this on a without costs basis.”

[13] The cross-claim has not yet been dismissed or formally withdrawn. The Blew defendants do not consent to a withdrawal without costs.

[14] On August 22, 2017, I made an order on consent that the parties attended examinations for discovery no later than November 30, 2017. Salman has not delivered an affidavit of documents nor did he attend for examinations for discovery despite the order. The Blew defendants have not sought any relief as against Salman for non-compliance with the order or for failure to deliver his affidavit of documents.

[15] As mentioned, the examinations for discovery of all parties except Salman took place in November 2017. In July 2018, the Blew defendants provided the answers to their undertakings. After numerous emails requesting answers to undertakings and a letter threatening a motion to compel same, the plaintiffs provided answers to undertakings on October 31, 2018. They failed to provide any position on matters taken under advisement. The Blew defendants assert that the answers to undertakings are incomplete.

[16] It is evident that from the close of pleadings through August 2017, it was defence counsel who was pushing for production of documents and discovery dates. Likewise, it has been counsel for the Blew defendants who has pushed for answers to undertakings.

[17] In his affidavit sworn May 30, 2019 found in the supplementary motion record, Mr. El-Hindi offered the following explanations for the delay in the action:

1. difficulty finding and serving Salman with the statement of claim;
2. the withdrawal of his original lawyer for health reasons;
3. settlement with Salman.

[18] At para. 12 of his affidavit, Mr. El-Hindi deposes:

“Following the validated service of the statement of claim, and service of the other pleadings outlined in paragraphs 8 – 10 of the Businger Affidavit, I decided to attempt to settle my claim with Salman. Salman did not tend to be responsive to email, so I made regular attempts to call him and discuss the matter. At times, I would call him on a weekly basis, but he was not returning my messages. Eventually, I managed to get through to Salman and the settlement was concluded within one or two months afterwards.

[19] With respect to prejudice, Mr. El-Hindi deposes:

19. I am not aware of any prejudice caused by the delay of the action. In particular, to my knowledge no material witnesses have become unavailable to give testimony at trial. Moreover, the principal witnesses, Blew and myself, have already been examined for discovery.

[20] The Blew defendants oppose the extension of time to set this action down for trial. They take the position that the explanations for delay offered by the plaintiffs are wholly inadequate and there is non-compensable prejudice, or at least, the plaintiffs have not provided cogent evidence that there is no such prejudice.

[21] The Blew defendants point to the following periods of delay in the prosecution of this action:

1. the 11 month delay in serving Salman and/or obtaining an order to validate service;
2. the 16 month delay between the date the order was made validating service and examinations for discovery held in November 2017;
3. the 16 month delay in moving for a timetable/status hearing. This relates to the period between examinations for discovery and the bringing of this motion.

[22] As for prejudice, Mr. Mouret, an associate lawyer in the firm acting for the Blew defendants, deposes at paras. 31 and 32 of his affidavit:

31. I verily believe that Blew has been prejudiced in her defence of this action by the delays as aforesaid inasmuch as Salman has failed and/or refused to deliver an Affidavit of Documents and there has, therefore, been no production from Salman nor was he examined for discoveries [sic] before the plaintiff settled its claim with Salman.
32. Inasmuch as Salman resides in Israel and taking into account his settlement with the Plaintiff, it will now be extremely difficult for Blew to obtain evidence including proper documentary evidence from Salman, a direct participant in the share redemption transaction giving rise to the allegations in this proceeding.

Analysis

[23] I note at the outset that the issues underlying this action do not appear to be factually or legally complex. The damages claimed are modest. This is a straightforward commercial case involving allegations of solicitor’s negligence. Ordinarily, it should not have required five or six years to be set down for trial.

[24] Dealing first with delay and the explanations proffered, I am satisfied that some of the delay is attributable to the defendant, Salman. The plaintiffs were obliged to move to validate service. Salman refused to deliver even an unsworn affidavit of documents. He ignored telephone messages aimed at initiating settlement discussions. He did not respond to requests for dates for examinations for discovery. He has not complied with the order to attend for examination for discovery.

[25] Unlike a criminal case where delay by one defendant may force the Crown to move to sever charges to avoid being off-side the Jordan time limit against a co-defendant, civil actions mandate joinder of claims arising from the same facts. As a result, delay by one defendant may impact all defendants, even those who are diligent and want to move ahead with the action. Thus, the Blew defendants have acted throughout with appropriate dispatch and have, to a large extent, driven the proceedings forward. By contrast, their co-defendant, Salman, has been largely non-responsive and non-compliant with the Rules.

[26] I agree with counsel for the Blew defendants that the evidentiary record does not reflect steps taken by the plaintiffs to deal with Salman’s dilatory conduct. Having decided to try to resolve with Salman first, the plaintiffs did not bring motions to force Salman to deliver his affidavit of documents and productions or to provide dates for discovery. That measure was taken by the Blew defendants. Nevertheless, Salman’s conduct does explain, in part, some of the delay incurred.

[27] The settlement discussions, once started, took only a couple of months to play out. A resolution with Salman was reached. The decision to engage in settlement discussions with one but not all defendants is not open to reproach. It is a strategic decision that the plaintiffs were entitled to make. Again, the settlement discussions account for part of the delay and are a reasonable explanation for some of that delay.

[28] Mr. El-Hindi also referred to health issues with his first counsel to account for some delay. The plaintiffs had new counsel by early November 2014. There is no statement, for example, that their first counsel was ill and was unable to provide instructions for service of the Statement of Claim. Whatever the health issues, the evidence is inadequate to explain how they contributed to delay.

[29] I am satisfied that the plaintiffs have demonstrated a satisfactory explanation for some but not all of the delay in this case. The plaintiffs have not pursued this action as diligently as they should; however, they have shown a consistent intention to pursue the claim and have taken steps to advance the claim. It is a close call but the plaintiffs have met the first criterion.

[30] Turning now to prejudice, the onus lies on the plaintiffs to demonstrate no non-compensable prejudice. It is always difficult to prove a negative. It is clear, however, that the principal witnesses are alive, including Salman. There is no evidence to indicate that Salman’s documents have been destroyed or lost.

[31] Salman was always a party residing outside the jurisdiction. His move to Israel and the impact that may have on his availability as a witness is unknown. It remains open to the Blew defendants to move for an order compelling delivery of his productions since he is still a party to the litigation at this point. Alternatively, they can seek a Rule 30.10 order if faced with a formal withdrawal from the action. They can also move for an order permitting examination of Salman as a witness. In short, the delay has not caused prejudice such that Salman’s evidence is now beyond reach; at least there is no reason to draw that conclusion.

[32] I note that the settlement with Salman took place in August 2017, well within the five years contemplated by R. 48.14. Having resolved with Salman, it was not incumbent on the plaintiffs to take steps to obtain or preserve Salman’s evidence for trial. The Blew defendants stand on the same footing today as they did in August 2017 as it relates to obtaining Salman’s evidence.

[33] Thus, I am satisfied that there is no non-compensable prejudice if the action is allowed to proceed. The second criterion of the test is met.

[34] The final issue is the timetable. The times proposed by counsel for the plaintiffs are, in my view, too generous. This action should be set down for trial not later than January 10, 2020. The parties shall deliver their respective sworn affidavits of documents by July 19, 2019. Any motion arising from the examinations for discover shall be brought by August 30, 2019. Any further examination for discovery shall be completed by October 11, 2019.

Costs

[35] Both counsel submitted Costs Outlines. The plaintiffs are the successful parties. There is no reason to deviate from the usual rule that costs follow the event. Partial indemnity costs are in order.

[36] The time spent and hourly rates strike me as appropriate. The matter involved the potential dismissal of the action and was important to the parties. The law is well-settled. I fix the costs of the motion payable to the plaintiffs at $4,000 inclusive of disbursements and HST. In fixing costs of the motion, I do not intend to restrict or limit the trial judge from considering and taking into account the plaintiffs’ conduct of the litigation in determining costs of the action.

Conclusion

[37] I order as follows:

1. The action shall be set down for trial on or before January 10, 2020.
2. The parties shall deliver their respective sworn affidavits of documents by July 19, 2019.
3. Any motion arising from the examinations for discover shall be brought by August 30, 2019.
4. Any further examination for discovery shall be completed by October 11, 2019.
5. The Defendants, Barbara Blew and Lerners LLP, shall pay costs to the plaintiffs fixed at $4,000 inclusive of disbursements and HST.

“Justice R. Raikes” Justice R. Raikes Date: July 5, 2019