COURT FILE NO.: CV-16-174-00 DATE: 2023 05 15
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
EMAD BESHAY Plaintiff M. Katzman and J. Hewlett, for the Plaintiff
- and -
AMGAD LABIB and HIAT LABIB Defendants A. Honickman for the Defendants
HEARD : April 3, 2023
REASONS FOR DECISION L. Shaw J.
Overview
[1] The plaintiff moves for an order to extend the time to set this matter down for trial. The defendants oppose the relief and take the position that the claim should be dismissed for delay as it has been more than five years since the claim commenced and the plaintiff has taken no steps to advance the claim since pleadings were exchanged.
[2] For the reasons that follow, the plaintiff’s action is dismissed.
History of the Litigation
[3] This action arises from the purchase and sale of a preschool, Forest Grove Academy of Arts & Technology Inc. (the “business”). On December 21, 2015, the plaintiff purchaser and the defendant vendors entered a share purchase agreement with respect to the purchase of the business. On December 22, 2016, the plaintiff commenced the present action seeking recission of that agreement. In the alternative, he seeks damages. The plaintiff alleges breach of contract and negligent or fraudulent misrepresentation regarding the revenues and expenses of the business. His claim is that the business is not as profitable as was represented to him by the defendants. The defendants deny all claims.
[4] The defendants were served with the Statement of Claim on January 10, 2017. They were noted in default on February 8, 2017. The defendants served a Statement of Defence on February 14, 2017, presumably unaware that they were noted in default. On February 17, 2017, the plaintiff agreed to set aside the noting in default. The plaintiff served a Reply on March 16, 2017.
[5] After pleadings were exchanged, on April 4, 2017, counsel for the defendants contacted the plaintiff’s counsel by telephone and suggested a meeting to canvass early resolution. Defendants’ counsel followed up with an email on May 24, 2017. Plaintiff’s counsel responded on November 16, 2017 and indicated that the plaintiff was agreeable to a meeting and a date was set for December 5, 2017. On the morning of the meeting, plaintiff’s counsel advised that the plaintiff did not want to meet with the defendants. Counsel then agreed to arrange a telephone call to discuss the matter. The initial call, scheduled for early January 2018, was postponed at the request of plaintiff’s counsel to obtain documents from the plaintiff. Counsel for the defendants followed up with plaintiff’s counsel on January 26 and February 2, 2018 and was told that plaintiff’s counsel was still waiting for documents from her client.
[6] Between May and July 2016, before the litigation was commenced, counsel for the plaintiff requested financial statements and supporting documentation for the business for the years 2014 and 2015 from the accountant who prepared the statements. As the accountant did not have any supporting documentation, counsel for the plaintiff wrote to the defendants in July 2016 asking for the supporting documentation and was informed in August 2016 that all supporting documents had been produced.
[7] One year after the litigation was commenced, on December 18, 2017 and January 9, 2018, plaintiff’s counsel wrote to the lawyer who represented the plaintiff in the purchase of the business requesting all relevant documents relating to the purchase. She also requested the relevant documents from the real estate agent who represented the plaintiff in the purchase. The requested documents were provided to the plaintiff in January and February 2018.
[8] According to the plaintiff, during this same time period, he was trying to collect documents on his own to reduce legal fees. No specifics were provided regarding what steps he took in that regard or what documents, if any, he obtained.
[9] Despite the collection of these documents, the plaintiff did not serve an affidavit of documents until September 23, 2022, over five-and-a-half years after the litigation was commenced.
[10] In a letter to the plaintiff’s counsel dated April 10, 2018, defendants’ counsel indicated that she was becoming increasingly concerned about the ongoing delay and that if the plaintiff was not interested in speaking about a resolution, she would seek instructions to bring a summary judgment motion. No such motion was brought.
[11] Plaintiff’s counsel responded on April 27, 2018 and apologized for the delay. She said that she had been informed by the plaintiff that there had been three deaths in his family in the last three months and he therefore needed some additional time to deal with this matter. She indicated that she would follow up with the plaintiff the following week and provide an update. Plaintiff’s counsel did not provide an update the following week and did not contact the defendants’ counsel for another four years.
[12] It was not until April 26, 2022, five-and-a-half years after the action was commenced, that counsel for the plaintiff wrote to counsel for the defendants enclosing a draft discovery plan and proposing a timeline to exchange affidavits of documents, conduct examinations for discovery and set the action down for trial. Also included was a consent and draft order to extend the time to set the action down for trial. In that letter counsel wrote:
We appreciate that the action has been dormant for some time. Our client, however, was dealing with numerous challenges including but not limited to the dramatic impact of the COVID-10 pandemic on his business. He has, however, now instructed us to move the action forward.
[13] As counsel for the defendants did not respond to that letter or an email sent on May 2, 2022, plaintiff’s counsel wrote on May 16, 2022 and advised that a motion for a status hearing was scheduled for June 20, 2022 and a motion record would be served in due course; it was served on June 8, 2022.
[14] The motion set for June 20, 2022 was adjourned, on consent, to August 15, 2022 and the defendants were ordered to pay $500 in costs. At the return date on August 15, 2022, the defendants had retained new counsel and, at the defendants’ request, the motion was adjourned to October 11, 2022, peremptory on the defendants. Cross-examinations on the affidavits were held on September 19, 2022. The motion was then heard on April 3, 2023.
[15] While I have summarized what transpired after plaintiff’s counsel wrote to the defendants’ counsel in April 2022, it is not relevant to my finding that the claim should be dismissed for delay.
Analysis
[16] Pursuant to rule 48.14 of the Rules of Civil Procedure, an action shall be dismissed by the registrar for delay if the action has not been set down for trial by the fifth anniversary of the commencement of the action. The fifth anniversary in this matter was December 21, 2021.
[17] The parties agree on the test to be applied for this motion. At a contested status hearing, the plaintiff has the burden of showing: (1) that there is an acceptable explanation for the delay in the litigation, and (2) that if the action were to proceed, the defendant would suffer no non-compensable prejudice: Khan v. Sun Life Assurance Company of Canada, 2011 ONCA 650, at para. 1.
[18] Several principles have been developed in the application of this test. A number of these were set out by the Court of Appeal in 1196158 Ontario Inc. v. 6274013 Canada Limited, 2012 ONCA 544 as follows:
- The civil justice system aims to resolve disputes fairly, on the merits and in a timely an efficient manner: at para 17.
- Achieving that goal in cases involving dismissal for delay requires a careful balance of the following two fundamental principles: (1) civil actions should, if possible, be decided on their merits and procedural rules interpreted accordingly, and (2) procedural rules that aim to resolve disputes in a timely and efficient manner can only achieve their goal if they are respected and enforced: at para. 18.
- A purely formalistic and mechanical application of timelines that would penalize parties for technical non-compliance and frustrate the goal of having disputes resolved on their merits should be avoided: at para. 19.
- The party who commences the proceeding bears primary responsibility for its progress: at para. 28.
- The conduct of a defendant may be relevant where it interferes with having a case proceed expeditiously: at para. 29.
- Actual prejudice or the lack thereof is an important factor to consider in cases of dismissal for delay but is not a requirement: at para. 32.
- If an action could not be dismissed for delay unless there was proof of actual prejudice, timelines would be meaningless: at para. 34.
[19] An acceptable explanation for the plaintiff’s delay depends on the circumstances of each case: Koepcke v. Webster, 2012 ONSC 357, at para. 22. The explanation does not have to be a “good” one but only “passable”, “adequate”, “acceptable”, “satisfactory” or “reasonable”: Super A Hotels v. 1205723 Ontario, 2020 ONSC 6785, at para. 23.
[20] The longer the delay, the more cogent the explanation for delay must be: Fasken Martineau DuMoulin LLP et. al. v. Elliott, 2018 ONSC 3880, at para. 30.
[21] In assessing the explanation for the delay, the court should consider whether the plaintiff demonstrated an intention to prosecute the action since the commencement of the action: Koepcke, at para. 15.
[22] The prejudice at issue is the defendant’s ability to defend the action as a result of the plaintiff’s delay, and not just as a result of the passage of time.
[23] Being mindful of these principles, I will now consider the plaintiff’s explanation for delay.
[24] The plaintiff’s position is that he was collecting relevant documentation for the litigation up until February 2018. He concedes he did not diligently pursue the litigation after that as a result of deaths in his family, which the defendants were informed of in April 2018. He deposed that shortly thereafter, his wife began to struggle with mental health issues and his focus was on caring for her. It is also his evidence that the COVID-19 pandemic and its impact on the daycare business caused him to have mental health issues and he started to experience high levels of anxiety and stress which impacted his ability to concentrate and function in his everyday life. He was prescribed medication for his anxiety.
[25] He also deposed in his affidavit that he was suffering financial strain after he purchased the business as it was not as profitable as represented to him by the defendants and the business incurred losses between 2017 and 2020. Furthermore, the business closed between March 2020 and early 2021 due to the pandemic and when it reopened, there were initially fewer registrations. His evidence is that this financial strain was also a reason he did not pursue the litigation.
[26] The plaintiff concedes that his explanation for the delay is not the strongest but urges the court to consider all the circumstances and balance the respective interests of all the parties. This includes considering the impact on the plaintiff should his claim be dismissed for delay as he will then lose his opportunity to have the matter determined on its merits.
[27] I will deal first with the assertion that delay was caused by the plaintiff needing to care for his wife who suffered from mental illness in 2018. No evidence was presented regarding the nature of the illness or its impact on the plaintiff or his wife. It is a bald assertion in his affidavit. Furthermore, when he was cross-examined on his affidavit, he was unsure whether she had even sought medical treatment for this mental illness.
[28] I accept that there were several deaths in the plaintiff’s family in 2018 that no doubt led to a period of distress and anxiety for the plaintiff and his wife. However, in the absence of cogent evidence of the nature of the wife’s illness or how it contributed to the plaintiff’s inability to pursue this litigation, I find this reason to be unacceptable and unreasonable. Just as his lawyer wrote to plaintiff’s counsel in April 2018 regarding the deaths in his family, he could have instructed his lawyer to request a further indulgence from the defendants if his focus was on caring for his wife as he claims. As the onus is on the plaintiff to provide a reasonable explanation for the delay, a bald assertion that his wife’s illness prevented him from pursuing the litigation is insufficient to discharge that onus.
[29] The plaintiff also claims that his own mental heath impeded his ability to diligently pursue this action. The plaintiff alleges that the source of his anxiety was the unprofitability of the business and the impact of COVID-19. Again, this is a bald assertion without any supporting corroboration such as a medical note from his family doctor.
[30] Intermingled with this explanation for delay due to mental illness and the impact of COVID-19 is the plaintiff’s assertion that he was suffering financial difficulties that also impeded his ability to pursue this action. In my view, the defendants have presented uncontested evidence that calls into question this assertion.
[31] In addition to operating the business, since 2008, the plaintiff also owns and operates another business, EMD Consulting. This is a business that provides IT services to clients, such as TD Bank. His income tax returns for 2018 and 2019 shows he earned between $139,000 and $141,000 from earnings from the daycare and dividends, presumably from his IT business. In those years, he was able to make charitable donations of $4,550 in 2018 and $4,460 in 2019. If the plaintiff was able to make charitable donations, and earn an income in excess of $100,000, presumably he had the financial ability to advance the litigation during those years.
[32] In addition to operating the business he purchased in 2015 and the IT business, the plaintiff also owns three homes in Oakville which he purchased in 2003, 2011 and 2015. When he was cross-examined on his affidavit, his evidence was that he rents two of the properties. His evidence is that he suffers losses each year from these properties, as noted in his income tax returns. His income tax returns also indicate that he generates significant rental income from these properties, before considering the expenses he incurs such as the mortgage payments and taxes.
[33] The property register reveals that there was some mortgage financing in 2015 for $1,103,000 but the plaintiff could not recall taking out any mortgages that year when he was cross-examined in September 2022. He paid $250,000 for the daycare business in 2015 but there is no evidence as to how the balance of the mortgage proceeds was used.
[34] The property register also reveals that in August 2022, a mortgage of $1,000,000 registered on title to one of his properties in July 2015 was discharged. When asked about this at his cross-examination conducted one month after the mortgage discharge, the plaintiff could not recall discharging the mortgage.
[35] Looking at this evidence cumulatively leads me to reject the plaintiff’s evidence that some of the delay was due to his focus on his wife’s health or his own mental health. Since the action was commenced in December 2016, the plaintiff has been able to run his IT business, the daycare, and act as a landlord. His ability to manage many tasks makes these particular explanations for delay ring hollow. This is particularly so in the absence of evidence, other than bald assertions, about his and his wife’s health.
[36] Furthermore, his explanation that his financial circumstances were a cause for delay also seems suspect. It is difficult to accept that an individual who owns three homes in Oakville and operates an IT business lacks the financial ability to pursue litigation he has commenced. I also have difficulty accepting his claims of financial strain given his inability to provide explanations for the various mortgages registered and discharged on title to these properties.
[37] I reject the suggestion that COVID-19, in and of itself, is an acceptable explanation for delay for the period between March 2020 and September 2022. There was an initial period where there was a suspension of court services and an impact on the justice system in general as we all learned to work remotely and use technology for such things as conducting examinations for discovery. Lawyers adjusted and continued to provide legal services. After the initial shock and adjustment to living and working during a worldwide pandemic, there is no reason why a letter could not have been sent to the defendants’ counsel, prior to August 2022, setting out a timetable or serving an affidavit of documents, with documents that were collected both prior to and after the statement of claim was issued. I agree with Justice Chown in Gordon v. Gordon, 2021 ONSC 273 that the pandemic is not an acceptable explanation for the delay.
[38] I accept that the pandemic did affect the business which had to cease operations for a period. This would have resulted in negative financial consequences to the plaintiff. However, he was able to continue to own three properties in Oakville. If his financial circumstances were so strained to the extent that he could not pursue this litigation, presumably he had the option of selling some of his real estate holdings, particularly as the real estate market gathered steam during the pandemic.
[39] When a party asks the court to find that their explanations for delay are reasonable, I expect that the party making the request would put their best foot forward and present cogent evidence to support those explanations. Bald assertions of illness or financial strain are insufficient to discharge that onus.
[40] Furthermore, I have also considered the length of the delay. It was four years from the date of the last letter from plaintiff’s counsel before the plaintiff took any step to move this matter forward. When assessing the reasonableness of the explanation for delay, I have also considered this four-year delay. Until September 2022 when the plaintiff served an affidavit of documents, this matter was still at the pleadings stage.
[41] I am also not persuaded that the plaintiff has demonstrated an intention to prosecute the action since the commencement of the action. Other than collecting some documents after the claim was commenced, the plaintiff took no further steps until April 2022 when his lawyer contacted the defendants’ lawyer after four years of “radio silence.” Furthermore, it was the defendants’ lawyer who initially reached out to the plaintiff’s lawyer to attempt to engage in discussions with an aim to resolving the matter. The plaintiff rejected those attempts. I also note that the plaintiff was aware of the defendants’ concern with delay as early as April 10, 2018 when their lawyer expressed her concern in a letter to the plaintiff’s lawyer.
[42] In my view, based on a review of the totality of the evidence, there is a lack of evidence that the plaintiff demonstrated an intention to pursue the claim since it was commenced.
[43] Having found the explanations for delay proffered by the plaintiff to be unacceptable, I do not have to consider the second branch of the test but will do so as, in my view, it further supports why the claim should be dismissed.
[44] While there is no onus on the defendants to prove actual prejudice, they have done so in two ways. First, the defendants filed affidavits from two witnesses, Chad Segers and Peter Saad, who both deposed that their memories have faded regarding the specifics of the purchase and sale transaction. They were not cross-examined, and their evidence is uncontested.
[45] Mr. Segers was the bookkeeper for the business between 2014 and 2016. At trial, he will testify about the general profitability of the business but his memory with respect to the specifics of the business has faded and he no longer has notes that he made at various times regarding the business.
[46] Mr. Saad is a lawyer and in 2015-2016 he was the lawyer for the business and was involved in its sale to the plaintiff. His evidence is that the sale was a complex transaction due to disagreements over the working capital adjustment and the expeditious timeline for the plaintiff to apply for relevant government subsidies. His evidence is that numerous emails and correspondence were exchanged during this time. He is not sure if he has all the relevant correspondence as he is not at the same law firm. According to Mr. Saad, while he will be able to testify about these matters, his ability to do so has been adversely affected by the passage of time, especially given the complexity of the transaction and the subsequent dealings between the parties.
[47] The evidence of these two witnesses is specific evidence of actual prejudice to the defendants. It is more than an assertion that, in general, memories fade over time, but rather undisputed evidence of two key witnesses that their memories are impaired.
[48] Secondly, the defendants filed a letter from Scotiabank dated September 6, 2022 that it cannot provide any banking records for the period prior to September 2015. The defendants’ evidence is that these records would be relevant to one of the central issues in dispute, that being the profitability of the business before it was sold to the plaintiff.
[49] The defendant Mr. Labib’s evidence is that when the business was sold, the plaintiff took over the bank accounts at Scotiabank. According to Mr. Labib, he recalls that the plaintiff was given banking records as part of his due diligence. He does not know if the plaintiff asked Scotiabank for the records for the period prior to 2015 and if he did not, the documents are no longer available to use by the defendants in defending the claim.
[50] As Scotiabank cannot produce banking records, which are relevant to a central issue in dispute, being the profitability of the business before it was sold to the plaintiff, that is evidence of actual prejudice to the defendants.
[51] I am mindful that dismissing the claim will prevent the plaintiff from having the matter resolved on its merits. I must also, however, consider the plaintiff’s failure to respect the rules designed to ensure the timely and efficient resolution of disputes. Rules and timelines must have some meaning. A party cannot set the pace of litigation on their own terms. If they could, rules that govern litigation would be meaningless and the justice system would become mired in a sea of protracted litigation leading to more delays and prevent timely access to justice – justice delayed is justice denied. As we live in a time of backlogs and with our judicial, staffing and courtroom resources strained, it is even more important that parties follow and respect rules that set out very clear timelines for all court proceedings.
[52] I agree with the comments of Justice Gray in Broniek-Harren v. Osborne, at para. 28, adopted by the Ontario Court of Appeal in 1196158 Ontario Inc. v. 6274013 Canada Limited:
The policy underlying the Rules of Civil Procedure is twofold: to ensure that cases that are not settled are tried on their merits; and to ensure that cases are processed, and heard, in an orderly way. A civilized society must ensure that a credible system of justice is in place, and the Rules of Civil Procedure, made pursuant to the Courts of Justice Act, reflect the scheme created by the Province for the orderly handling of civil cases.
[53] The orderly handling of civil cases includes following clear and specific timelines to uphold public confidence in and the integrity of the justice system.
[54] Dismissing a claim for delay is not to be taken lightly. Rule 48.14 makes it clear that there are ramifications if a party is not diligent in pursuing a claim. Five years is ample time for a party to take steps to advance their claim. In this case, there is no evidence that the defendants did anything to impede the progress of the claim. It was squarely on the plaintiff’s shoulders to progress the litigation.
[55] I have used a contextual approach and have considered a number of factors to conclude that the plaintiff’s claim ought to be dismissed for delay. I do not find the plaintiff’s explanations for delay to be reasonable and given the evidence of actual prejudice to the defendants, I am concerned that the claim could not be resolved on its merits even if I permitted the action to continue.
[56] The plaintiff’s claim is therefore dismissed.
L. Shaw J. Released: May 15, 2023