Court File and Parties

COURT FILE NO.: 09-CV-13311CM

MOTION HEARD: March 1, 2012

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1128636 Ontario Inc., carrying on business as Automotive Prototype & Tooling, Plaintiff

AND:

Mazak Corporation Canada, Defendant

BEFORE: Master Lou Ann M. Pope

COUNSEL: Jeffrey W. Nanson, for the Plaintiff

Nicole Henderson, for the Defendant

HEARD: March 1, 2012

REASONS FOR DECISION

[1] This contested status hearing was adjourned from January 23, 2012 in order for the parties to file material.

[2] In this action, the plaintiff seeks damages for breach of contract in the amount of $2 million. The defendant allegedly failed to deliver a tooling machine purchased by the plaintiff that the plaintiff urgently required to fulfill a contract that it had secured to pre-process crank shafts.

[3] The following is a chronology of the steps in this action:

June 23, 2009 Issuance of statement of claim;

June 30, 2009 Statement of claim was served on the defendant;

July 15, 2009 Delivery of notice of intent to defend;

July 27, 2009 Statement of defence served on the plaintiff;

July 28, 2009 Mr. Mossman, plaintiff’s counsel, requested particulars;

August 12, 2009 Delivery of amended statement of defence and response to request for particulars;

July 23, 2010 Notice of assignment of mediator issued by the court pursuant to rule 24.1.09(6);

July 27, 2010 Mediation held; agreement to continue mediation in four to six months and no later than January 30, 2011 in order for the plaintiff to retain a forensic accountant to create a damages brief;

August 3, 2010 Defendant’s counsel seeks production from Mr. Mossman; request unanswered;

August 12, 2011 Status Notice served on the parties by the Registrar; Mr. Mossman notified the plaintiff, by letter, of receipt of the status notice;

November 7, 2011 Plaintiff retained Mousseau DeLuca McPherson Prince LLP to represent it in this action; Mr. Nanson, a lawyer who practices with that firm, served the defendant with a notice of change of lawyer and requested a status hearing;

November 8, 2011 Mr. Nanson advised the defendant in writing of plaintiff’s request for a status hearing and requested that defence counsel contact him;

November 16, 2011 Defence counsel responded with its position on delay and requested that the plaintiff advise on how it intended to proceed;

December 19, 2011 Mr. Nanson responded to defence counsel’s letter by enclosing a proposed timetable to complete all of the steps in the action;

January 5, 2012 Defence counsel’s letter to Mr. Nanson putting the plaintiff on notice that the defendant intended on proceeding with the status hearing on January 23, 2012 and for the plaintiff to show cause why this action should not be dismissed for delay;

January 23, 2012 Status hearing attended by counsel for the parties and Martin Peakovic, representative of the plaintiff; status hearing adjourned with timelines to serve and file material for a contested status hearing on March 1, 2012;

March 1, 2012 Contested status hearing.

Evidence of the Plaintiff

[4] The plaintiff filed the affidavit of Martin Peakovic. He is the sole officer and director of the plaintiff corporation. The defendant did not cross-examine Mr. Peakovic on his affidavit.

[5] The plaintiff initially retained lawyer, Samuel Mossman, to commence this action and by the end of June 2009, the statement of claim had been issued and served on the defendant.

[6] In January 2010 Mr. Peakovic separated from his spouse. He retained Mr. Mossman to represent him with respect to the divorce proceeding. By June 2010 Mr. Peakovic had lost confidence in Mr. Mossman because of actions Mr. Mossman took in the divorce proceeding.

[7] However, the parties proceeded to mediation on July 27, 2010. The parties reached an agreement at that time to continue mediation in four to six months, and no later than January 30, 2011, in order for the plaintiff to retain a forensic accountant and deliver a damages brief.

[8] It is Mr. Peakovic’s evidence that following the mediation, he began to search for a new lawyer to represent him in his divorce proceeding and to represent the plaintiff in this action. By November 2010, he had retained a new lawyer to represent him in his divorce proceeding; however, because he had to pay a significant amount of money for the initial retainer as well as ongoing fees, he was not financially able to pay the monetary retainer to the lawyers he consulted with respect to this proceeding. However, once his divorce proceeding resolved in June 2011, he was able to regain focus on this proceeding and another proceeding commenced against the plaintiff in small claims court. On June 29, 2011 he retained Mr. Nanson to represent the plaintiff in the small claims court action. That action, scheduled for trial on July 4, 2011, was adjourned to February 16, 2012.

[9] Approximately six weeks after retaining Mr. Nanson in the small claims court action, Mr. Peakovic learned from Mr. Mossman’s letter that the court had issued a status notice in this action. Mr. Mossman’s letter stated that “[I]t appears you have not retained a new lawyer so I would ask that you kindly review this notice and provide me with your instructions forthwith.”

[10] Mr. Peakovic met with Mr. Nanson immediately after receipt of Mr. Mossman’s letter to inquire whether Mr. Nanson could represent the plaintiff; however, Mr. Peakovic was not in a financial position to pay the plaintiff’s account with Mr. Mossman until November 7, 2011 and to make arrangements to secure the file from him. He completed his retainer with Mr. Nanson the same day.

[11] Mr. Nanson immediately thereafter served a notice of change of lawyers, requested a status hearing and wrote to defence counsel. By mid-December 2011, Mr. Nanson had delivered a proposed timetable to defence counsel for completion of the steps in this action in advance of the status hearing scheduled for January 23, 2012.

[12] Mr. Peakovic’s evidence is that documents will be produced by the plaintiff that will verify the damages claimed. Neither party delivered an affidavit of documents. Lastly, he stated that the plaintiff always intended to continue with this action and it is now in a financial position to continue to do so.

Law

Test at a Status Hearing

[13] The test that a plaintiff is required to meet at a contested status hearing was set out in my recent decision in Pouget v. Hynes, 2012 ONSC 829, at paras. 12, 16, 17, as follows:

If an action in which a defence has been filed has not been placed on a trial list or terminated by any means within two years after the first defence is filed, the registrar sends out a status notice. Pursuant to rule 48.14(4) the registrar will dismiss the action for delay 90 days after service of the status notice unless the action has been set down for trial or terminated, a timetable has been approved by the court, or the judge or case management master presiding at the status hearing has ordered otherwise. Where a party requests a status hearing, rule 48.14(13) requires that “the plaintiff shall show cause why the action should not be dismissed for delay.” If the presiding judge or case management master is “satisfied that the action should proceed,” subrule 48.14(13)(a) gives discretion to the judge or case management master to set a timetable for the completion of the remaining steps or make other orders as are just. However, if “not satisfied that the action should proceed,” the judge or case management master may dismiss the action for delay under subrule 48.14(13)(b).

The test that a plaintiff must meet at a contested status hearing was confirmed in a recent decision of the Court of Appeal in Khan.[^1] The test places the onus on the plaintiff to satisfy both aspects of a two-part test; that is, to demonstrate that “there was an acceptable explanation for the involved litigation delay and that, if the action was allowed to proceed, the [defendant] would suffer no non-compensable prejudice.” [Footnoted in original.]

There is no onus on the defendant to demonstrate prejudice; however, should the defendant show actual prejudice, the court will consider this as a relevant factor.[^2] [Footnoted in original.]

Explanation for the Delay

[14] The evidence is that Mr. Peakovic is the sole officer and director of the plaintiff, Automotive Prototype & Tooling.

[15] The plaintiff provided three reasons for delay in this proceeding: separation from his spouse; loss of confidence in his lawyer; financial troubles.

[16] Mr. Peakovic separated from his spouse in January 2010 and retained Mr. Mossman to represent him in the divorce proceeding. To put this into context, the statement of claim was served promptly after it was issued at the end of June 2009. By the end of July 2009, the statement of defence had been served, Mr. Mossman had requested particulars and by mid-August 2009, the defendant had delivered an amended statement of defence and a response to the request for particulars. As such, some five months transpired from delivery of the amended statement of defence to the time Mr. Peakovic and his spouse separated.

[17] The second explanation for the delay was due to loss of confidence in his lawyer, Mr. Mossman. His evidence is that approximately five months after his separation in January 2010, he had lost confidence in Mr. Mossman given certain steps Mr. Mossman took in his divorce proceeding. However, given the court assignment of a mediator in July 2010, the parties proceeded to mediate the issues on July 27, 2010 with an agreement to continue the mediation no later than January 2011 with the expectation that the plaintiff would have delivered a damages brief by that time.

[18] Mr. Peakovic’s evidence is that between June and November 2010, he searched for a new lawyer to represent him in his divorce proceeding. In November 2010 he retained a new lawyer and he was required to pay a significant retainer.

[19] The third explanation for the delay is due to financial troubles. Between the fall of 2010 and June 2011 he attempted to retain a new lawyer for this action; however, because of the retainer and ongoing legal fees in the divorce proceeding, he could not afford to pay a retainer to a new lawyer for this proceeding.

[20] In June 2011 his divorce proceeding was resolved and he then regained focus on this proceeding and the small claims court action. He dealt with the small claims court action first due to its impending trial on July 4, 2011.

[21] Another aspect of his financial troubles was paying Mr. Mossman’s account before he could obtain the file from him. His evidence is that shortly after retaining his current lawyer, Mr. Nanson, to represent him in the small claims court action, he met again with him on August 12, 2011, upon receipt of Mr. Mossman’s letter and the status notice, to inquire about retaining him in this action. He was unable to pay Mr. Mossman’s account until November 7, 2011 and that same day he completed his retainer with Mr. Nanson.

Analysis

Length of Delay

[22] Admittedly, the plaintiff concedes that there were no litigation steps taken by the plaintiff for some 16 months, from the time of the mediation on July 27, 2010 and the date the status hearing was requested on November 7, 2011.

[23] On the other hand, the defendant argues that the plaintiff failed to take any steps to prosecute this action for over 26 months from August 12, 2009 when the amended statement of defence was served to November 7, 2011, the date the status hearing was requested. It is argued that the delay ought to be calculated from August 2009 and not July 2010 when mediation took place, because the mediation was scheduled at the initiative of the court and not the plaintiff. I agree with that argument in part for the following reasons.

[24] It was not the court that initiated the mediation session. The mediation coordinator for the court merely made an assignment of a roster mediator to this file pursuant to rule 24.01.09(6) because the requirements of that rule had not been met. Briefly, a mediation session must take place within 180 days after the first defence has been filed, unless the court orders otherwise. If the mediation coordinator has not received a mediator’s report, a notice of name of mediator and date of session (Form 24.1A), an order extending the time to mediate, written consent to postpone the mediation session, or other specified documents, an assignment must be made. None of those documents were filed which prompted the assignment. The notice states a specified time in which mediation must be held. As such, upon receipt of the notice of assignment of mediator, it was open to each party to contact the assigned mediator to arrange a date for the mediation session. In this case, there is no evidence whether the mediation session on July 27, 2010 was fixed by the mediator pursuant to rule 24.1.09(7) or scheduled on consent of the parties. It appears from the last paragraph of Mr. Berg’s letter dated July 23, 2010 to the mediator[^3] that there was agreement on the mediation date: “I understand that Mr. Mossman is available for a mediation by telephone on Tuesday, July 27, 2010 at 1:00 p.m.” Further, all lawyers and parties attended the mediation.[^4]

[25] While I agree with the defendant that the plaintiff took no steps to prosecute this action from August 12, 2009, I disagree that it failed to take any action until November 2011 when the status hearing was requested. Clearly, the plaintiff took the step of agreeing to mediate this action on July 27, 2010 and agreeing to move the case forward to no later than January 30, 2011 when it expected to have delivered a damages brief. This never happened. On this point, it is noteworthy that the retaining of a forensic accountant would no doubt have caused additional financial burden on the plaintiff.

[26] For the above reasons, I find that there were two periods of delay; firstly, between August 12, 2009 and mid-July 2010, some 11 months. Secondly, once mediation was held, the plaintiff took no further litigation steps until November 7, 2011 when he retained new counsel and requested the status hearing, almost 16 months.

Explanation for Delay

[27] The plaintiff must explain both periods of litigation delay.[^5]

[28] Further, the plaintiff is required to not only explain the delay in the litigation, but also to provide a clearly articulated plan for moving the case forward.[^6]

[29] The plaintiff relies on Clements v. Greenlaw, 2009 CanLII 33028 (ON SCDC), 2009 CarswellOnt 3704, 252 O.A.C. 135, for the proposition that an order striking the plaintiff’s claim should only be exercised when the integrity of the justice system is in issue and there has been a history of flagrant breaches. The Court of Appeal stated at para. 39 that:

In the ordinary course the purpose of a Status Hearing is to find out why the case in question has not been set down for trial within the two-year period prescribed by the Rules and to ensure that an order is made to facilitate steps to move the case forward. It may be that in unusual and clear cases, where there is actual prejudice to the defendant, and there is a history of flagrant breaches by the plaintiff of various court orders, that the drastic order of dismissing an action at the Status Hearing may be appropriate. I emphasize that such an order would be unusual. Such unusual circumstances are not present in the facts of this case.

[30] Further, at para. 22 that court referred to the decision of Gray J. in Broniek-Harren v. Osborne, [2008] O.J. No. 1690 (Ont. S.C.J.), wherein he described the competing principles of the right to have cases determined on their merits, with the need for the orderly procedure progress of litigation.

[31] The defendant relies on Khan, at para. 19, where it was held that there is no bar to the court dismissing an action at a first status hearing where there has been inexcusable delay and further that this remedy is not reserved for cases where there has been a history of flagrant breaches.

[32] Having considered all the evidence, it is my view that the plaintiff has adequately explained the periods of delay in this action. In arriving at this conclusion, I have taken into consideration the three explanations for the delays which began in or about January 2010 when the plaintiff representative, Mr. Peakovic, separated from his spouse, and ended when he was able to retain his present counsel to proceed with this action. It is noteworthy that Mr. Peakovic attended in person at both status hearings and it was his evidence, the sole director and shareholder of the plaintiff, that was tendered on behalf of the plaintiff for the status hearing. In my view, these factors demonstrate a clear intention to continue with this action.

[33] Further, it is reasonable and understandable that separation and divorce would have caused significant financial burden on Mr. Peakovic and undoubtedly on the plaintiff corporation in the face of three legal proceedings: this action, the small claims court action and his divorce proceeding, which appears from the evidence were ongoing simultaneously. Despite the financial difficulties, the plaintiff proceeded to mediate this action, presumably with the hope that it might be resolved at that time, thus avoiding further financial burden, including the cost to retain a forensic accountant.

[34] I accept that further delay was caused by the breakdown in his relationship with his former counsel in the divorce proceeding as well as in this action, which he was able to rectify in part in June 2011 when retaining Mr. Nanson to deal with the impending small claims court trial, and then in November 2011 when he was able to pay his former counsel’s account and obtain the file in order to retain Mr. Nanson.

[35] Therefore, the plaintiff has satisfied its onus to adequately explain the periods of delay in this action.

No non-compensable prejudice to the defendant

[36] There is no onus on the defendant to demonstrate prejudice at a status hearing; however, should the defendant show actual prejudice, the court will consider this as a relevant factor.

[37] I agree with the plaintiff’s submissions that the defendant will suffer no non-compensable prejudice by allowing this action to proceed. This action is based in contract such that any damages will flow from the alleged breach of contract and will be based on the documents produced by the plaintiff. Further, as the limitation period did not expire until January 2011, the plaintiff could have waited until January 2011 to commence this action; therefore, the action would not be any further along than it is now.

[38] Prior to the status hearing on January 23, 2012, the plaintiff proposed a clearly articulated timetable and discovery plan to complete all of the remaining steps in this action. Therefore, I am satisfied that the plaintiff met its onus as determined in Donskoy.

Conclusion

[39] In summary, the plaintiff has adequately explained the delay in this action. Further, I am satisfied on the evidence that there would be no non-compensable prejudice to the defendant if this action proceeded.

[40] For the above reasons, I decline to grant the defendant’s request that this action be dismissed for delay pursuant to rule 48.14(13)(a).

Timetable

[41] The timetable proposed by the plaintiff[^7] shall apply to this action with the following necessary modifications:

1. Exchange affidavits of documents by July 23, 2012;

2. Production of documents by July 23, 2012;

3. The defendant shall advise the plaintiff in writing of the name of the person it intends to produce for discovery by July 23, 2012;

4. Complete discoveries by October 31, 2012;

5. Comply with undertakings by December 31, 2012;

6. Hearing of any discovery motions by February 28, 2013;

7. Set down for trial by May 1, 2013.

Costs

[42] Despite its success, the plaintiff failed to prosecute its claim with diligence; therefore, there shall be no order as to costs to the plaintiff.

[43] The issue is now whether the defendant is entitled to its costs. Prior to the first status hearing in January 2012, the plaintiff proposed a reasonable timetable for the balance of the remaining steps; however, the defendant refused to agree to that timetable. I am not satisfied that this was a reasonable decision given two factors; namely, the plaintiff had recently retained new counsel and had proposed a timetable to complete all remaining steps in the action. In my view, these two factors ought to have demonstrated to the defendant the plaintiff’s intention to diligently prosecute this action from that point on and therefore the defendant ought to have consented to the proposed timetable or any slight modification thereto. As such, in these circumstances, the defendant is not entitled to its costs.

Original signed by “Master Lou Ann M. Pope”

Master Lou Ann M. Pope

Date: May 29, 2012

[^1]: Khan v. Sun Life Assurance of Canada, 2011 ONCA 650, [2011] O.J. No. 4590 (C.A.), affirming 2011 ONSC 455, [2011] O.J. No. 510 (SCJ).

[^2]: Riggitano v. Standard Life Assurance Co. [2009] O.J. No. 1977 (S.C.J.) at para. 34, affirmed [2010] O.J. No. 292, 2010 ONCA 70 (C.A.).

[^3]: Exhibit “C” to the affidavit of Bradley E. Berg sworn January 20, 2012.

[^4]: Exhibit “F” to the affidavit of Martin Peakovic sworn February 3, 2012.

[^5]: Oberding v. Sun Life Financial Assurance Co. of Canada, 2010 ONSC 3303, [2010] O.J. No. 3122, 2010 ONSWC 3303 (Div. Ct.) at para. 15 where it was held that the court is required to make a “determination regarding the plaintiff’s intention to prosecute the action throughout the period since the commencement of the action.”

[^6]: Donskoy v. Toronto Transit Commission, 2008 CanLII 47020 (ON SCDC), [2008] O.J. No. 3634 (Div. Ct.) at para. 14.

[^7]: Exhibit “M” to the affidavit of Martin Peakovic sworn February 3, 2012.