The Corporation of the City of Hamilton v. Svedas Koyanagi Architects Inc. et al.; Peto McCallum Ltd. et al., Third Parties [Indexed as: Hamilton (City) v. Svedas Koyanagi Architects Inc.]

104 O.R. (3d) 689

2010 ONCA 887

Court of Appeal for Ontario,

Laskin, R.P. Armstrong and Juriansz JJ.A.

December 22, 2010

Civil procedure -- Costs -- Third party -- Third party not defending main action but appearing on plaintiff's motion to set aside registrar's order dismissing action for delay -- Motion judge not erring in exercising his discretion to award costs of motion to third party.

Civil procedure -- Dismissal for delay -- Setting aside -- Plaintiff commencing action in March 2000 against architect and general contractor of arena project based on defects in arena which appeared in late 1994 -- Plaintiff doing nothing to move action along until it asked for statements of defence in late 2005 -- Counsel for plaintiff inadvertently failing to attend status hearing in February 2009 -- Registrar dismissing action for delay -- Motion judge not erring in dismissing motion to set aside registrar's order -- Delay inordinately long -- Plaintiff failing to provide adequate explanation for its failure to proceed with action between March 2000 and November 2005 -- Defendants suffering actual prejudice as result of delay. [page690]

The defendants were the architect and general contractor on an arena project for the plaintiff. The plaintiff alleged that serious defects in the arena appeared in late 1994. The plaintiff commenced an action against the defendants in March 2000 but, apart from asking for statements of defence in November 2005, did very little to move the action along. Eventually, the registrar issued a status notice. Counsel for the plaintiff inadvertently failed to attend a status hearing in February 2009. The registrar issued an order dismissing the action for delay. The plaintiff's motion to set aside the registrar's order was dismissed on the grounds that the cumulative delay had not been adequately explained and that it had prejudiced the defendants. The plaintiff appealed. It also appealed the motion judge's award of costs of the motion to a subcontractor which was third partied by one of the defendants, chose not to defend the main action but appeared on the motion.

Held, the appeal should be dismissed.

The delay was inordinately long, and a critical part of the delay was either unexplained or intentional. Having waited until close to the expiry of the limitation period to start its action, the plaintiff was obliged to move it along, yet did nothing in the critical five-and-a-half-year period between March 2000 and November 2005. That inaction called out for an explanation, and no adequate explanation was provided. It was open to the motion judge to find that the defendants suffered actual prejudice as a result of the delay based on the unavailability or faded memories of important witnesses.

The motion judge did not err in exercising his discretion to award costs to the third-party subcontractor.

APPEAL from the order of Lococo J., [2010] O.J. No. 1248, 2010 ONSC 1803 dismissing a motion to set aside the registrar's order dismissing an action for a delay and from a costs order.

Cases referred toClairmonte v. Canadian Imperial Bank of Commerce, 1970 470 (ON CA), [1970] 3 O.R. 97, [1970] O.J. No. 1506, 12 D.L.R. (3d) 425 (C.A.); Finlay v. Van Paassen (2010), 101 O.R. (3d) 390, [2010] O.J. No. 1097, 2010 ONCA 204, 266 O.A.C. 239, 318 D.L.R. (4th) 686, 188 A.C.W.S. (3d) 675; Marché d'Alimentation Denis Thériault Ltée v. Giant Tiger Stores Ltd. (2007), 87 O.R. (3d) 660, [2007] O.J. No. 3872, 2007 ONCA 695, 47 C.P.C. (6th) 233, 286 D.L.R. (4th) 487, 247 O.A.C. 22; Scaini v. Prochnicki (2007), 85 O.R. (3d) 179, [2007] O.J. No. 299, 2007 ONCA 63, 219 O.A.C. 317, 39 C.P.C. (6th) 1, 154 A.C.W.S. (3d) 1075; Wellwood v. Ontario (Provincial Police) (2010), 102 O.R. (3d) 555, [2010] O.J. No. 2225, 2010 ONCA 386, 262 O.A.C. 349, 90 C.P.C. (6th) 101 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.04, 48

Paul R. Sweeny and Shane Van Engen, for appellant. Charles Simco and Megan Marrie, for respondent Svedas Koyanagi Architects Inc. Sharon C. Vogel and Daniel A. Boan, for respondent Bradscot Construction Limited. David Waterhouse, for respondent Group Eight Engineering Ltd. [page691]

The judgment of the court was delivered by

LASKIN J.A.: -- A. Overview

[1] This is another in a series of recent appeals in which this court must decide whether to set aside a registrar's order dismissing a plaintiff's action for delay.

[2] The City of Hamilton sued the defendants, Svedas Koyanagi Architects and Bradscot Construction, for design and construction defects in the building of the Chedoke Twin Pad Arena. Svedas was the architect and Bradscot was the general contractor on the project.

[3] The arena was substantially completed in March 1994. The City alleges that serious defects, particularly cracks in the ice pad, first appeared soon after the arena opened. Nonetheless, the City waited until the spring of 2000, close to the expiry of the limitation period, [See Note 1 below] to start this action. From then on, except for asking for statements of defence (which were delivered) and a failed motion to add Honeywell as a defendant, the City did almost nothing to move the action along.

[4] Eventually, the registrar issued a status notice. The City scheduled a status hearing for February 2009, but its counsel, who was handling the file, forgot to attend. On July 9, 2009, the registrar issued an order dismissing the City's action for delay. On March 30, 2010, the City's motion to set aside the registrar's order was dismissed by Lococo J., principally because he found that the cumulative delay had not been adequately explained and had prejudiced the defendants.

[5] The City appeals the motion judge's order. The main issue on the appeal is whether the motion judge exercised his discretion unreasonably in refusing to set aside the dismissal order. The City submits that the motion judge's order is unreasonable on two bases: first, the motion judge erred in finding that the City had not provided a reasonable explanation for the delay; and second, the motion judge erred in finding that the defendants had been prejudiced by the delay.

[6] The secondary issue on the appeal is whether the motion judge erred in awarding costs of the motion to Group Eight Engineering, which was third partied by Svedas. The City submits that Group Eight had no standing on the motion and no entitlement to costs because it chose not to defend the main action. [page692]

[7] On the main issue, I do not agree with all of the motion judge's analysis. But his conclusion that the City has not made out a case for setting aside the registrar's order is a reasonable conclusion. On the secondary issue, awarding costs of the motion to Group Eight was a reasonable exercise of the motion judge's discretion. I would therefore dismiss the City's appeal. B. Brief Chronology

[8] The period between the time construction defects first appeared (late 1994) and the registrar's dismissal order (July 2009) is approximately 15 years. That 15-year period breaks down into three distinct segments:

-- late 1994 (when defects appeared) to March 2000 (when the City started the action);

-- March 2000 to November 2005 (when the City asked for statements of defence); [and]

-- November 2005 to July 2009 (date of the dismissal order). (i) Late 1994 to March 2000

[9] In its factum, the City says that "serious construction defects, including cracks in the ice slabs and water entry problems, appeared after the arena opened". The motion judge found that the defects came to light by late 1994. Still, the City did nothing for several years. In early January 1999, it obtained three expert reports supporting its claim that "the likely causes of defects were the faulty design, faulty materials and faulty inspections provided by the defendants". It forwarded those reports to Svedas but not to Bradscot. In March 2000, the City issued a notice of action, and in April 2000, it delivered its statement of claim. (ii) March 2000 to November 2005

[10] In this critical five-and-a-half year period, the City took no steps to move its lawsuit forward.

[11] The defendants, on the other hand, were not silent during this period. Svedas asked for an indulgence to investigate the claim and prepare a defence. Bradscot sent a request to inspect documents and a demand for particulars. The City did not respond. Then, between May 2000 and May 2001, Bradscot's counsel sent five letters to the City about the action. The City's in-house counsel did not reply to any of them. In Bradscot's last letter dated May 16, 2001, it said with some justification: [page693] "it appears that the City is no longer interested in pursuing this claim".

[12] Finally, in late November 2005, the City delivered to Bradscot the three expert reports it had had in its possession since the beginning of 1999. At the same time, it asked Bradscot and Svedas to deliver statements of defence. Each defendant did so: Bradscot in December 2005 and Svedas in April 2006. (iii) November 2005 to July 2009

[13] In March 2006, the City appointed outside counsel to handle the matter. That firm remained counsel of record until after the motion judge's order, at which time the City retained new counsel to represent it on this appeal.

[14] In April 2006, the City demolished and removed the arena's concrete ice-pad. It then retained an engineering consultant to examine the cracking. The consultant delivered a report in December 2006 in which it concluded that the temperature control system manufactured and installed by Honeywell was defective. According to the consultant, the malfunctioning of the control system caused the concrete to crack.

[15] The City then moved to add Honeywell as a defendant in the action. However, it waited to bring the motion until June 2008. The motion was heard in March 2009 and dismissed because the City's delay was not explained and had prejudiced Honeywell.

[16] Meanwhile, by the end of December 2007, two years had elapsed since Bradscot had delivered its statement of defence. As the City had not set the action down for trial within this time frame, the registrar issued a status notice under Rule 48 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[17] The City scheduled a status hearing for February 12, 2008. The City alone attended on February 12 and adjourned the hearing to August 19, 2008. On that day, because its motion to add Honeywell was pending, the City once again adjourned the status hearing, this time to February 10, 2009. It did not advise either Bradscot or Svedas of this new date. On February 10, 2009, no one attended the status hearing. The motion judge found -- and his finding is not challenged on appeal -- that the failure of the City's counsel to attend the status hearing was inadvertent. On July 9, 2009, the registrar issued an order dismissing the City's action for delay. C. The Motion Judge's Reasons

[18] In exercising his discretion not to set aside the registrar's order, the motion judge made several key findings, which I summarize as follows: [page694]

-- The City did not have to explain its delay in waiting until just before the limitation period expired to start its action. However, the cumulative delay, of which this initial delay is a component, may be relevant on the question of prejudice.

-- The City did not adequately explain its delay in the period from the spring of 2000 to November 2005.

-- The City did not adequately explain its failure to investigate potential causes of damage to the concrete ice- slabs before retaining an expert in early 2006.

-- The City's delay in moving to add Honeywell, in isolation, would not support a finding of "unjustified litigation delay". However, taken together with previous delays, [at para. 25] "the cumulative result . . . constitutes delay that has not been adequately explained".

-- Prejudice to the defendants can be presumed because [at para. 26] "the recollection of memory of witnesses will erode over time, and evidence that would otherwise be available may be lost".

-- The City's delay has caused significant actual prejudice to the defendants. The defendants have been prejudiced in two ways. They have been prejudiced because many of their witnesses are either unavailable or have little recollection of the arena project, and they have been prejudiced by the City's failure to add Honeywell.

-- The City's failure to appear at the status hearing in February 2009 was inadvertent.

-- "[I]n all the circumstances of this case, including the City's lack of adequate explanation for the cumulative litigation delay and the significant prejudice to the respondents, the City has not made out the case for setting aside the registrar's order dismissing the action" [at para. 33]. D. Discussion (1) Did the motion judge exercise his discretion unreasonably in refusing to set aside the registrar's order?

[19] Judges' decisions on whether to set aside a registrar's order dismissing an action for delay are discretionary. The general principles and specific considerations that structure the exercise of this discretion are well established: see [page695] Scaini v. Prochnicki (2007), 2007 ONCA 63, 85 O.R. (3d) 179, [2007] O.J. No. 299 (C.A.); Marché d'Alimentation Denis Thériault Ltée v. Giant Tiger Stores Ltd. (2007), 2007 ONCA 695, 87 O.R. (3d) 660, [2007] O.J. No. 3872 (C.A.); Finlay v. Van Paassen (2010), 2010 ONCA 204, 101 O.R. (3d) 390, [2010] O.J. No. 1097, 266 O.A.C. 239 (C.A.).

[20] Two principles of our civil justice system and our Rules of Civil Procedure come into play. The first, reflected in rule 1.04(1), is that civil actions should be decided on their merits. As the motion judge said, at para. 31 of his reasons: "the court's bias is in favour of deciding matters on their merits rather than terminating rights on procedural grounds".

[21] The second principle, reflected in the various time limits mandated by our rules, and indeed, as noted by the motion judge, in the provision for a status notice and hearing, is that civil actions should be resolved within a reasonable time frame. In Marché, at para. 25, my colleague Sharpe J.A. wrote about the strong public interest in promoting the timely resolution of disputes. Both the litigants and the public have an interest in timely justice. Their confidence in the administration of our civil justice system depends on it.

[22] On motions to set aside an order dismissing an action for delay, invariably there is tension between these two principles. In seeking to give effect to these principles, motion judges must take account of and weigh a list of considerations. These considerations typically include

-- the length of the delay;

-- whether the plaintiff has adequately explained the delay;

-- whether the delay has prejudiced the defendants;

-- whether the dismissal order resulted from a lawyer's inadvertence; and

-- whether, after becoming aware of the dismissal order, the plaintiff moved reasonably promptly to set it aside.

[23] This list is not exhaustive. Moreover, which considerations are relevant and how much weight should be assigned to each will vary from case to case. The court's overriding objective is to achieve a just result -- a result that balances the interest of the parties and takes account of the public's interest in the timely resolution of disputes.

[24] The motion judge applied the framework outlined above. However, the City contends that he erred in two important [page696] respects: first, by finding that the City had not reasonably explained its delay; and second, by finding that the defendants were prejudiced by the delay. Although I do not agree entirely with the motion judge's analysis, his findings of unexplained delay and prejudice are well supported in the record. And his overall conclusion that the registrar's order should not be set aside is reasonable and should not be disturbed on appeal.

[25] I accept that three considerations weigh in favour of setting aside the registrar's order. First, if the order is allowed to stand, the City will be denied a decision on the merits of its claim. Second, courts are justifiably reluctant to deny litigants their day in court because of their lawyer's slip. Here, the dismissal order was triggered by the inadvertent failure of the City's counsel to attend the status hearing he had scheduled. Courts often grant relief against these slips. Third, the City moved promptly against the dismissal order after becoming aware of it.

[26] These considerations are outweighed by three others, which dictate the outcome of this appeal: the delay is inordinately long; a critical part of the delay was either unexplained or intentional; and the cumulative delay has prejudiced the defendants. (i) The delay is inordinately long

[27] By any reasonable standard, the delay in this case is inordinately long. Fifteen years after the City claimed the ice pad was damaged, its action has not proceeded past the pleadings stage. Of course, defendants as well as plaintiffs have an obligation to move an action along: see Clairmonte v. Canadian Imperial Bank of Commerce, 1970 470 (ON CA), [1970] 3 O.R. 97, [1970] O.J. No. 1506, 12 D.L.R. (3d) 425 (C.A.), at p. 442 D.L.R. But the primary responsibility rests with a plaintiff: see Wellwood v. Ontario (Provincial Police) (2010), 2010 ONCA 386, 102 O.R. (3d) 555, [2010] O.J. No. 2225, 262 O.A.C. 349 (C.A.). Moreover, this is not a case where the defendants sat back silently waiting for the City to falter. For example, after serving the notice to inspect documents and the demand for particulars, Bradscot wrote five letters to the City about the status of this action. Inexplicably, the City did not reply to any of them.

[28] On my assessment of the record, the entire responsibility for the delay rests with the City. And, having waited until close to the expiry of the limitation period to start its action, the City was obliged to move it along. Yet, seemingly it did nothing in the critical five-and-a-half-year period between March 2000 and November 2005. Its inaction during that period cries out for an [page697] explanation. That leads to the second consideration supporting the motion judge's decision. (ii) The City's inaction was unexplained or intentional

[29] The motion judge found that the City did not adequately explain its failure to proceed with its action between March 2000 and November 2005. The City contends that this finding is tainted by two errors: first, the motion judge erred by requiring the City to explain its failure in this period to investigate potential causes of damage to the concrete ice- slabs; second, the motion judge erred by failing to give effect to what the City says was an understanding among all parties that the action would not proceed to discovery until the ice pad was removed and demolished.

[30] I agree with the City that, in the context of this motion, it was not obliged to explain its delay in investigating the causes of the damage to the ice pad. Even so, however, it was obliged to explain its delay in this period and it did not do so. The "understanding" on which the City relied was rightly rejected by the motion judge, at para. 20 of his reasons, because there was no direct evidence to support it. He said, and I agree:

The only evidence of this understanding before the court was contained in an "information and belief" affidavit from a lawyer from the law firm currently representing the City, who did not represent the City at the relevant time. No written evidence of the understanding was provided, and none of the other supposed parties to the alleged understanding had any recollection of it. In these circumstances, and in the absence of affidavit evidence from someone from the City with direct knowledge of the alleged understanding (who would then have been subject to cross-examination on this point), the City has not discharged its onus of providing an adequate explanation for the delay during this period.

[31] Additionally, neither of the in-house counsel handling the file during this period filed an affidavit on the motion. In a case where the inordinate length of the delay was obvious, this was a serious omission. This omission means either that the City's delay is unexplained or leads to the inference that the City has no adequate explanation for its delay.

[32] In oral argument before the motion judge, the City advanced a different position: it decided to keep the ice pad in place until the end of its useful life, and proceed with its action only once the ice pad was removed and demolished. In other words, perhaps because of financial considerations, its delay in this period was not unexplained but intentional. The reason proffered for its intentional delay is hardly a satisfactory explanation for further protracting an already protracted lawsuit. If indeed its decision to delay its action during this period was [page698] intentional, the City alone must bear the consequences of that decision. In short, I agree with the motion judge that the City did not provide an adequate explanation for the delay during this five-and-a-half-year period. (iii) Actual prejudice

[33] On motions to set aside orders dismissing an action for delay, the question whether a defendant has been prejudiced by the delay is invariably a key, if not the key, consideration. Svedas and Bradscot filed affidavits stating that they had been prejudiced by the long delay because many of their important witnesses were now either unavailable or could no longer remember much about the project. The motion judge relied on this evidence to find, at para. 28 of his reasons, that the City's delay had prejudiced the defendants:

The Defendants Svedas and Bradscot have both provided instances of where important witnesses are unavailable or their evidence impaired by the passage of time caused by the City's delay. In the case of Svedas, the lead principal involved in this project, Mr. Koyanagi, is 80 years old and semi-retired, and his memory of a project completed 16 years ago has faded. Svedas's senior technical employee with day- to-day responsibility for the project is in poor health and unavailable to testify as a witness. Other technical personnel involved in the project have long since left the firm and Svedas has no knowledge of their whereabouts. Bradscot also provided evidence that key personnel involved in the project no longer worked for the company and could not be located or, if they could be located, had faded memories of the project or were unavailable to testify for health reasons.

[34] The motion judge also found [at para. 29] that "[t]he City's failure to move in a timely manner to add Honeywell as a defendant" had prejudiced Svedas and Bradscot.

[35] The City submits that the motion judge erred in both of these findings. It submits that no prejudice resulted from the unavailability or faded recollection of witnesses because this is a case where "the documentary evidence will tell the tale", and almost all of the relevant documents are still available. The City also submits that its failure to add Honeywell cannot constitute prejudice because the defendants could have done their own investigation to decide whether to seek contribution from Honeywell.

[36] To take the City's second submission first, I agree with it. The City could sue whom it wanted to sue. Its failure to move in a timely way to add Honeywell put it in the same position as if it had decided not to sue Honeywell at all. If the action proceeded to trial and it turned out that the City had not sued the right defendant or defendants, then its action would fail. But nothing prevented Svedas or Bradscot from adding Honeywell as a third party. [page699]

[37] That leaves the motion judge's finding of prejudice based on the unavailability or faded memories of important witnesses. I agree with the City that cases may arise that turn largely or completely on documents or expert evidence. In those cases, the evidence of key witnesses may be unimportant. The City asserts that this is just such a case. Yet it put no evidence forward to support this assertion. Moreover, it did not cross-examine on the affidavit evidence filed by Svedas. And, although the City did cross-examine on the affidavit filed by Bradscot, the cross-examination did not undermine Bradscot's evidence that several of its important witnesses either were unavailable or had little recollection of the project. Thus, the City's attack on the motion judge's finding of prejudice from unavailable witnesses and lost memories must fail. (iv) Overall balancing

[38] The very lengthy delay, which was not adequately explained and which prejudiced the defendants, justifies the motion judge's refusal to set aside the registrar's order dismissing the City's action for delay. I would not give effect to the City's main ground of appeal. (2) Did the motion judge err in exercising his discretion to award costs to Group Eight?

[39] Group Eight was the mechanical and electrical "sub- consultant" to Svedas. When Svedas delivered its statement of defence, as might be expected, it took third-party proceedings against Group Eight and its other sub-consultants. Group Eight was entitled to defend the main action but chose not to do so. Still, it appeared on the City's motion and together with Svedas and Bradscot was successful in having the motion dismissed.

[40] Group Eight then sought its costs of the motion. The City argued that as it did not sue Group Eight and Group Eight did not defend the main action, the City should not be required to pay Group Eight's costs. The motion judge disagreed. He held that "Group Eight had a direct interest in the outcome of the motion, since setting aside the registrar's dismissal order would have resulted in revival of the third party claims brought by Svedas, including the claim against Group Eight." On appeal, the City renews the argument it made before the motion judge. It says that Group Eight ought not to be given standing, but that at the very least, it should not be entitled to costs.

[41] It is unnecessary to decide whether in all motions of this kind a plaintiff should be at risk to pay the costs of a third party who did not defend the main action. The motion judge's exercise [page700] of discretion to award Group Eight its costs is supportable because not only was Group Eight affected by the outcome of the motion, it was also reasonably foreseeable that Svedas would take third party proceedings against its sub-consultants. I would therefore not give effect to this ground of appeal. E. Conclusion

[42] Because the City's inordinate delay was not adequately explained and prejudiced the defendants, I would not interfere with the motion judge's refusal to set aside the registrar's order. Nor would I interfere with the motion judge's costs order in favour of Group Eight.

[43] Accordingly, I would dismiss the City's appeal. I would award costs of the appeal to each of Svedas and Bradscot in the amount of $7,000, and to Group Eight in the amount of $1,500, inclusive of disbursements and applicable taxes.

Appeal dismissed.

Notes

Note 1: The former six-year limitation period for tort actions applied.