COURT FILE NO.: CV-09-393159
DATE: 20120608
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Apotex Inc. v. Relle
BEFORE: Master Glustein
COUNSEL: D.E. Lederman and M. Anderson for the plaintiff
M. Baird for the defendant
HEARD: June 4, 2012
REASONS FOR DECISION
Nature of hearing and overview
[1] The present hearing is a contested status hearing under Rule 48.14(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). The plaintiff, Apotex Inc. (“Apotex”) is required to show cause why the action should not be dismissed for delay.
[2] The defendant Panni Relle (“Relle”) submits that Apotex has not shown cause why the action should not be dismissed for delay. Consequently, Relle submits that the action should be dismissed with costs to be assessed.
[3] For the reasons discussed below, I allow the action to continue.
[4] Relle submits that Apotex did not meet its burden of “demonstrating 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” (as that test is set out in Khan v. Sun Life Assurance Company of Canada, [2011] ONCA 650 (“Khan”) at para. 1; and Savundranayagam v. Sun Life Assurance Co. of Canada, 2008 CanLII 54788 (ON SCDC), [2008] O.J. No. 4215 (Div. Ct.) (“Savundranayagam”) at para. 13).[^1] Relle submits that Apotex must establish both Khan factors in order for the action to continue.
[5] I adopt the approach taken by Master Dash in Koepcke v. Webster, 2012 ONSC 357, [2012] O.J. No. 230 (S.C.J. – Mast.) (“Koepcke”) which requires the court to consider the Khan factors in a contextual manner to determine the just result on a show cause hearing. Consequently, a plaintiff at a show cause hearing is not required to rigidly meet both elements of the Khan test, rather the court should consider the Khan factors and any other contextual factors to arrive at a just result. This approach is consistent with the settled law on a motion to set aside a registrar’s dismissal order.
[6] On the evidence before the court, the just result that balances the interests of the parties and takes into account the public’s interest in the timely resolution of disputes [^2] is that the action not be dismissed. Apotex led evidence to provide an acceptable explanation for the litigation delay, based on frequent settlement discussions both before and during the course of the action. While Apotex did not lead sufficient evidence to demonstrate that Relle would suffer no non-compensable prejudice if the action was allowed to proceed, Apotex has produced its affidavit of documents, provided a detailed response to Relle’s demand for particulars, and there is no evidence of actual prejudice to Relle.
[7] Further, Apotex and Relle acted in good faith by attempting to resolve the litigation while a related action was ongoing. Apotex should not be penalized for not pursuing the costly steps of litigation while engaged in a settlement process that was ultimately unsuccessful. Dismissing an action in such circumstances would not be just and would hinder settlement between parties to litigation.
[8] Consequently, even though Apotex failed to meet the “non-compensable prejudice” factor under the Khan test, the just result is to allow the action to continue.
Evidence at the hearing
[9] The evidence before the court consisted of (i) an affidavit sworn on May 8, 2012 by an associate with Goodmans LLP (“Goodmans”), the lawyers for Apotex and (ii) an affidavit sworn on May 3, 2012 by a partner at Lenczner Slaght Royce Smith Griffin LLP (“Lenczner Slaght”), the lawyers for Relle.
[10] There were no cross-examinations on the affidavits. Consequently, the evidence as stated in the affidavits is uncontested.[^3]
(a) The Main Action
[11] The present action (the “Relle Action”) arises as a result of a related action brought in 2006 (the “Main Action”) in which Apotex seeks damages from two defendants, Ercros Industrial S.A. c.o.b. as Fermantaciones Y Sintesis Espanolas S.A. (“FYSE”) and Richter Gedeon Vegyeszeti Gyar RT for breach of an agreement to supply the active medicinal chemical famotidine (the “FYSE Supply Agreement”).
[12] In the Main Action, Apotex claims contractual rights with FYSE based on “arrangements … facilitated by FYSE’s Canadian sales agent, Atlantic Chemicals (“Atlantic”)”.
[13] In its statement of defence in the Main Action dated October 12, 2007, FYSE denies that Atlantic was FYSE’s Canadian sales agent and alleges that Atlantic was “a non-exclusive broker of chemical products of [FYSE] and others”.
(b) The claims against Relle in the Relle Action
[14] In its statement of claim in the Relle Action, Apotex alleges that:
(i) “at all material times [Relle] was involved in negotiating a contract for the supply of famotidine for sale in Canada, the United States and elsewhere, between [FYSE] and Apotex” (paragraph 4 of the statement of claim);
(ii) “Apotex’s dealings with FYSE were all through Ms. Relle, who represented to Apotex that she was authorized by FYSE to act as FYSE’s Canadian sales agent and had the authority to conclude an agreement with Apotex on FYSE’s behalf. Apotex relied on Ms. Relle’s representations when it entered into the FYSE Supply Agreement” (paragraph 7 of the statement of claim);
(iii) “If the Court in the [Main] Action determines that there was no authority to conclude the FYSE Supply Agreement, then Apotex pleads that Ms. Relle is liable to Apotex for damages for breach of warranty of authority. Ms. Relle represented to Apotex that, as FYSE’s agent, she had the authority to bind FYSE contractually to a supply agreement with Apotex. Apotex relied to its detriment on these representations and believed that it had entered into the FYSE Supply Agreement” (paragraph 9 of the statement of claim);
(iv) “In addition, Ms. Relle is liable to Apotex for negligently misrepresenting that she had the authority to conclude a supply agreement with Apotex on behalf of FYSE. Apotex relied to its detriment on these representations and believed it had entered into the FYSE Supply Agreement” (paragraph 10 of the statement of claim); and
(v) “As a result, if the Court in the [Main] Action finds that Apotex cannot recover from FYSE damages for breach of contract, Apotex claims recovery of the damages that it suffered from Ms. Relle for breach of authority of warranty and negligent misrepresentation” (paragraph 11 of the statement of claim).
(c) Settlement discussions prior to the Relle Action
[15] In the fall of 2007 (which generally coincides with the date of FYSE’s statement of defence in the Main Action), Apotex and Relle commenced settlement discussions.
[16] Apotex sought to toll the limitation period “to resolve Apotex’s potential claim and avoid the expense of litigation”.[^4]
[17] In 2009, Relle retained prior counsel. Between September and November 2009, prior counsel exchanged correspondence with Goodmans in which “the parties indicated an interest in resolving the matter”.
[18] On November 30, 2009, Relle retained Lenczner Slaght. At that point, settlement discussions did not progress until after Apotex initiated the Relle Action.
(d) Steps taken in the Relle Action
[19] The steps taken in the Relle Action were as follows:
(i) On December 10, 2009, Apotex issued its statement of claim;
(ii) On December 21, 2009, Relle served and filed a notice of intent to defend;
(iii) On January 6, 2010, Relle served and filed a demand for particulars;
(iv) Apotex responded to the demand for particulars on January 19, 2010;
(v) Relle served and filed a statement of defence and counterclaim on January 25, 2010;
(vi) In her counterclaim, Relle alleges that the Relle Action was an abuse of process and that “As a direct result of Apotex’s continuous threats of litigation and abusive use of court processes, Mrs. Relle has suffered from severe stress and incurred significant legal costs” (paragraph 18 of the statement of defence and counterclaim);
(vii) Apotex and Relle’s counsel engaged in settlement discussions “after commencement of, and throughout, this proceeding”;
(viii) On January 25, 2010 (the date Relle filed her statement of defence and counterclaim), a lawyer at Lenczner Slaght contacted a lawyer at Goodmans “inquiring about potential settlement”;
(ix) Goodmans and Lenczner Slaght “exchanged further correspondence regarding settlement proposals throughout that summer” (i.e. the summer of 2010);
(x) Settlement discussions “eventually subsided”. On January 27, 2011, Relle’s counsel wrote to Apotex’s counsel requesting a reply and defence to counterclaim, stating that Relle would note Apotex in default if the pleading was not received by February 4, 2011;
(xi) On February 4, 2011, Apotex served its reply and defence to counterclaim;
(xii) In April and May, 2011, Relle’s counsel sent correspondence to Apotex’s counsel requesting his “intentions with respect to progressing the action”;
(xiii) Settlement discussions resumed in June 2011;
(xiv) On June 8, 2011, Relle’s counsel sent a settlement offer to Goodmans;
(xv) Settlement discussions continued throughout the months of July and August 2011;
(xvi) On August 10, 2011, Apotex’s counsel spoke with Relle’s counsel and provided her with a counter offer;
(xvii) During the August 10, 2011 conversation in which Apotex’s counsel provided Relle’s counsel with a counter offer, Relle’s counsel “indicated that she would take the offer back to her client but that a response would not be quickly forthcoming”;
(xviii) Apotex’s evidence is that “Subsequent to the exchange on August 10, 2011, it was Apotex’s belief that the parties were still interested in resolving the matter. However, no response or counter offer was ever received by Apotex, nor was there any other communication from [Relle’s counsel] indicating that [Relle] wished to get on with the action”;
(xix) On December 23, 2011, Apotex received a status notice;
(xx) On January 27, 2012, Apotex’s counsel wrote to Relle’s counsel with a proposed timetable that (i) contemplated that the action would be set down for trial within a year, and (ii) set out a schedule for all steps required to reach the proposed set down date (including an exchange of affidavits of documents by April 30, 2012 and completion of examinations for discovery by July 30, 2012);
(xxi) In the January 27, 2012 letter, Apotex’s counsel reiterated that “Our client remains interested in resolving this matter”;
(xxii) On February 3, 2012, Relle’s counsel responded to Apotex’s January 27, 2012 letter stating that “We do not consent to the proposed timetable, or to the continuation of your action. It appears a status hearing will be necessary, if your client is insistent on proceeding with the action”;
(xxiii) On February 21, 2012, Apotex requested a status hearing;
(xxiv) On February 27, 2012, the court office informed Apotex that the status hearing would be heard on May 10, 2012;
(xxv) On May 4, 2012, Apotex served its affidavit of documents on Relle and enclosed a draft protective order for Relle’s counsel to review. Apotex’s counsel also proposed the weeks of June 11 or 18, 2012 for examinations for discovery; and
(xxvi) On May 10, 2012, I adjourned the status hearing to be heard by me as an opposed status hearing on June 4, 2012.
(e) Other evidence at the hearing
[20] Relle is 80 years old.
[21] Relle’s lawyer attached a letter from Relle’s family doctor to her affidavit. The family doctor states in his letter that Relle has been “under considerable stress over the past few years” and “[Relle] informed me that the source of the stress is a lawsuit that has been protracted and acrimonious”.
[22] Relle’s family doctor adds in his letter that:
(i) he has prescribed tranquilizers to alleviate some of Relle’s anxiety;
(ii) he has noted “physical manifestations that may be attributed to anxiety, including chest pains and variable elevations in blood pressure measurements”;
(iii) “the ongoing stress associated with the lawsuit is taking a toll on Mrs. Relle’s health”; and
(iv) “it would be important to make every effort to reduce the level of stress [Relle] is under as it[^5] can be expected to have increasingly detrimental effects on her health”.
[23] Relle’s lawyer states in her affidavit that Relle “had no involvement in this matter in a personal capacity” and that “any correspondence by Ms. Relle pertaining to this matter was on letterhead of [Atlantic]”, which was the trade name used for carrying on the business of “Pharmatrade Canada Limited”.
[24] Both sides filed evidence as to the status of the Main Action, which I summarize as follows:
(i) The most recent scheduling order dated July 29, 2011 has been vacated on the consent of the parties. That order is currently about nine months passed its initial date for the hearing of the motion to compel answers from the first round of examinations for discovery, with Apotex required under that order to set the Main Action down for trial by June 15, 2012;
(ii) In 2010, Apotex and FYSE engaged in a motion relating to the sufficiency of Apotex’s affidavit of documents;
(iii) In the fall of 2011, the parties conducted eight or nine days of examinations for discovery;
(iv) On June 4, 2012, the parties in the Main Action were to argue the balance of their motions[^6] to compel answers from the first round of examinations for discovery;
(v) A new scheduling order in the Main Action was to be put in place at the June 4, 2012 hearing; and
(vi) Relle has not been involved in the Main Action nor has Relle or her counsel received any information from Apotex about the status of the Main Action.
Analysis
(a) The applicable law
[25] Relle submits that Apotex must meet both requirements under the Khan test, i.e. Apotex must demonstrate that (i) “there was an acceptable explanation for the involved litigation delay” and (ii) “if the action was allowed to proceed, the [defendant] would suffer no non-compensable prejudice”. In other words, Relle submits that if Apotex cannot satisfy both requirements, the action must be dismissed. I do not agree.
[26] I adopt the “contextual” test set out by Master Dash in Koepcke, which provides that the court shall consider the Khan factors, but must determine, in the context of the evidence, whether it is just to dismiss the action, even if either or both Khan factors are not met.
[27] In Koepcke, the plaintiff took no steps at all in the action for the entire 26-month period between issuing the statement of claim on June 9, 2009 and the status notice on October 3, 2011.[^7] Master Dash found that the plaintiff’s counsel was holding the action (which related to lawyer’s negligence) in abeyance until a substantive determination on limitation issues was made in a related action. Plaintiff’s counsel never consulted with defendant’s counsel about the decision to hold the action in abeyance and never spoke to defendant’s counsel until October 26, 2011, after receipt of the status notice (Koepcke, at paras. 7-11).
[28] Consequently, Master Dash held that the plaintiff had not satisfied the first factor of the Khan test. Master Dash stated (Koepcke, at para. 30):
In conclusion, the decision whether to hold the action in abeyance is one that must be made with the knowledge of the defendant and either with the defendant's consent or by order of the court. It was not reasonable for the plaintiff to make this decision unilaterally and not tell the defendant. It was not reasonable to take no steps in the litigation for over two years. Such steps would have included informing the defendant of their intent to hold the file in abeyance and seeking the defendant's consent or moving for a stay. The resulting litigation delay was not reasonable. [Emphasis added.]
[29] Further, the plaintiff in Koepcke did not satisfy the second factor of the Khan test. Master Dash stated that the plaintiff “adduced no evidence whatsoever to meet the onus of demonstrating that if the action were allowed to proceed the defendant would suffer no non-compensable prejudice” (Koepcke, at para. 31) Master Dash stated (Koepcke, at para. 31):
For example there is no evidence before the court that the plaintiffs have preserved their own documents, that their memories are intact and their witnesses still [sic] available. Of course the plaintiffs have put themselves in the position of not knowing if the defendant's documents are preserved and witnesses available. That is because the plaintiffs have not demanded an affidavit of documents and not conducted any form of discovery. This is compounded by the failure to file an affidavit from the plaintiffs personally at this status hearing. Although the defendant has adduced no evidence of actual prejudice there is no onus on him to do so. The onus is on the plaintiffs to demonstrate that the defendant will not be prejudiced. [Emphasis added.]
[30] Consequently, the plaintiff in Koepcke was not able to satisfy either of the two factors under the Khan test. Master Dash held (Koepcke, at para. 36):
On a strict application of the Khan test, the action should be dismissed for delay. No steps whatsoever were taken in the action for over two years between the close of pleadings and issuance of the status notice. The plaintiffs' explanation was that the action was commenced as a precautionary action and would proceed only if the Second Underlying Action were dismissed as a result of the defendant's negligence in taking no steps to prosecute the First Underlying Action. Until then it was uncertain if the plaintiffs had suffered damages because of the defendant's negligence and as a result the plaintiffs held this action in abeyance. While I found this to be an acceptable explanation for the delay in taking steps in the litigation such as productions and discovery, I found that the plaintiffs failed to provide an acceptable explanation for no taking no steps whatsoever, such as moving for a stay of proceedings or advising the defendant of their intentions and seeking his consent. The defendant, if advised, may or may not have agreed with a stay or with holding the action in abeyance. I also found that the plaintiffs had provided no evidence to demonstrate that the defendant had not suffered prejudice as a result of the delay. [Emphasis added.]
[31] However, Master Dash allowed the action to continue. Master Dash reviewed the settled law on a motion to set aside a dismissal order requiring a contextual approach to determine the “just” result. In particular, Master Dash noted that a plaintiff seeking to set aside a registrar’s dismissal order was not required to meet each of the Reid factors[^8] (i.e. explanation of the litigation delay, inadvertence in not setting the action down for trial or seeking an extension of the set down date, promptness in bringing the motion, and prejudice to the defendant).
[32] Further, Master Dash stated that it would be illogical for a plaintiff at a contested status hearing to have a higher burden than a plaintiff seeking to set aside a dismissal order (i.e. having to satisfy each factor rather than a contextual approach). Master Dash reviewed all of the relevant case law and held (Koepcke, at paras. 18, 22, and 23):
In my view, the plaintiff need not rigidly satisfy both aspects of the test but the two factors, acceptable explanation for the delay and demonstrating absence of prejudice to the defendant, must be considered, together with any other relevant factors, on a contextual basis. Although the Court of Appeal in Khan did not addressed a contextual approach at a status hearing, other decisions of the Court of Appeal have determined that a contextual approach is required on motions to set aside a registrar's dismissal of an action that resulted from a failure to set an action down within the time set out in a status notice (where no status hearing was requested) or as set out in a status hearing order. The Court of Appeal set out the four principal factors (known as the "Reid factors") to be addressed on motions to set aside a registrar's dismissal. Two of those factors are the same as the two factors to be addressed at a contested status hearing. (The other two factors do not apply at a status hearing, but only where the action has been dismissed.) The Court of Appeal held that when considering the setting aside of a registrar's dismissal the plaintiff need not rigidly satisfy each of the four factors but they are to be considered together with any other relevant factors on a contextual basis to make such order as is most just in the circumstances of the particular case. If a contextual approach is to be used after an action has been dismissed for failure to comply with a status hearing order it speaks even louder that a contextual approach should be followed at a contested status hearing, before the action is dismissed.
Finally, although the court at a contested status hearing must be guided by the two-part test articulated in Khan, and recognizing that the onus is on the plaintiff to satisfy both branches of the test, the determination whether to allow the action to proceed is discretionary. Rule 48.14(13)(b) provides that the court "may" dismiss for delay. There will be some cases where a plaintiff can show cause that "on the whole, it would be unfair for the action to be dismissed. Determining fairness or unfairness requires a consideration of all the circumstances and a certain balancing of the respective interests of the parties." As Master MacLeod stated in Amirrahmani, what the court accepts as a justifiable or acceptable explanation is "case dependant."
To some extent this echoes the sentiment echoed by the Court of Appeal on motions to set aside a registrar's dismissal where the court must exercise its discretion based on a consideration of two competing principles in our civil justice system - the public interest in discouraging delay and permitting actions to be determined on their merits. In particular Laskin J.A. said in exercising discretion on such motions, "two principles of our civil justice system ... come into play ... The first ... is that civil actions should be decided on their merits ... The second principle is that civil actions should be resolved within a reasonable timeframe ... 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. On motions to set aside an order dismissing an action for delay, inevitably there is a tension between those two principles." Justice Laskin adds that the amount of weight to be assigned to each consideration "will vary from case to case. The court's overriding objective is to achieve a just result - a result that balances the interests of the parties and takes into account the public's interest in the timely resolution of disputes." In my view, this approach is equally applicable at a contested status hearing. [Emphasis added; footnotes omitted]
[33] In Koepcke, Master Dash allowed the action to continue. He held (Koepcke, at paras. 37 and 40):
On the other hand, considering the delay contextually and considering fairness to both parties, I am of the view that the action should be permitted to proceed. The plaintiffs acted in good faith in not proceeding with this action and in avoiding costs to be incurred by both parties unless and until it became necessary to proceed with the action. It was in my view however an error in judgment for Mr. Radnoff not to advise the defendant or move for a stay. The defendant should have been given the option of consenting to a stay or proceeding with the action. That error in judgment in my view should not deprive the plaintiffs of the ability to claim against the allegedly negligent lawyer if it is later discovered that they have incurred damages as a result of that negligence unless the defendant has been prejudiced by the delay.
I also note that the question of delay has come before the court for the first time at this status hearing and there are no outstanding court orders. The explanation for delay, while deficient, was credible and incurred in good faith. Mr. Radnoff is now prepared to proceed with a stay motion or with prosecution of this action, after the defendant makes his position known. In my view this is a case where fairness to the plaintiffs in having the actions determined on the merits outweighs the interest of the public in discouraging delay. [Emphasis added.]
[34] The decision of Master Dash is consistent with the comments of Reid J. in Khakshoorian v. Nu Globe Developments, 2011 ONSC 6159 (S.C.J.) (“Khakshoorian”). Reid J. held (Khakshoorian, at para. 22):
As observed by J.W. Quinn J. in Sepehr Industrial Mineral Exports Co. v. Alternative Marketing Bridge Enterprises Inc. (2007), 2007 CanLII 23175 (ON SC), 86 O.R. (3d) 550, Rule 48.14(8) does not suggest any criteria for a judge to consider in deciding whether a plaintiff has successfully shown cause. The rule only requires that the judge be "satisfied that the action should proceed". I consider this to be no accident or inadvertent omission on the part of the rules committee. Rather it is an intentional invitation for the judge to make a determination by balancing the competing principles referred to above in the context of the individual circumstances of each case and in the interest of achieving a just result.
[35] I adopt the approach of Master Dash in Koepcke. To require a plaintiff to meet both factors under Khan without considering the context of the case is contrary to the approach taken by the Court of Appeal in motions to set aside registrars’ dismissal orders and contrary to the general principle that the court should exercise its discretion to dismiss a claim (or refuse to set aside a dismissal order) in a manner that reflects the just result between the parties.
[36] If a plaintiff had to meet both Khan factors to allow the action to continue at a contested status hearing, the plaintiff could simply wait for the registrar to dismiss the action and then move to set aside the dismissal order, thereby benefitting from the settled law that a contextual approach is required. It is illogical to require a higher standard before dismissal of the action.
[37] Consequently, I follow the approach of Master Dash in Koepcke and take a contextual approach to the evidence before me.
(b) Application of the law to the evidence
[38] I now consider the two Khan factors, as well as the additional contextual factors relevant to a just result.
(i) Acceptable explanation for the litigation delay
[39] The Relle Action did not proceed for two years except for the exchange of pleadings between the parties and Apotex’s response to Relle’s demand for particulars. However, the frequent settlement discussions between the parties constitute a reasonable explanation for the litigation delay.
[40] In January 2010, as soon as Relle served her statement of defence and counterclaim and only six weeks after Apotex issued its statement of claim, the parties resumed settlement discussions which had started in the fall of 2007 at approximately the same time FYSE raised the issue of Atlantic’s authority to contract on FYSE’s behalf.
[41] Settlement discussions then continued throughout the summer of 2010, and resumed again between June and August 2011.
[42] After August 2011, Apotex reasonably waited for a response to its settlement offer, since Relle’s counsel advised on August 10, 2011 that a responding offer would not be quickly forthcoming.
[43] There were some time periods between settlement discussions in which there is no explanation why the action did not proceed promptly. By way of example, there is no explanation for the delay between the end of the summer 2010 settlement discussions until Apotex delivered a reply in February 2011, and in the period in April and May of 2011 when Relle’s counsel wrote several letters asking about Apotex’s intentions in the action.[^9]
[44] However, these delays do not detract from the evidence on an overall basis that settlement discussions were frequently taking place.
[45] I agree with the comments of H.K. O’Connell J. in Canadian Champion Auto v. Petro-Canada, 2011 ONSC 6794 (S.C.J.) (“Canadian Champion Auto”) that “A mere counting of days or months does not nor could it ever inform what in any given case is too much delay or not enough delay. Each case rides on its own history” (Canadian Champion Auto, at para. 85). However, the comments of H.K. O’Connell J., relied upon by Relle, support the conclusion that it is not sufficient to count days of settlement discussion as opposed to days of no activity in the Relle Action. The “history” of the litigation delay in this case shows a repeated intention to discuss settlement.
[46] The conclusion that the parties were generally in “settlement mode” rather than “litigation mode” for the period from the date Apotex issued the statement of claim until February 2012 is demonstrated by Apotex’s conduct once Relle made it clear in early February 2012 that Relle would not provide a responding settlement offer.
[47] Relle’s counsel stated on August 10, 2011 that a response to Apotex’s settlement offer “would not be quickly forthcoming”. Apotex’s counsel’s letter on January 27, 2012 proposed a timetable in response to the status notice and reiterated Apotex’s position that Apotex “remains interested in resolving this matter”.
[48] When Relle’s counsel responded on February 3, 2012 to advise Apotex that “We do not consent to your proposed timetable, or to the continuation of your action” and that “It appears a status hearing will be necessary, if your client is insistent on proceeding with the action”, Apotex moved from settlement mode into litigation mode. Apotex promptly requested a status hearing by a Status Hearing Request Form dated February 21, 2012. On May 1, 2012, Apotex served its affidavit of documents on Relle, enclosed a draft protective order for Relle’s counsel’s review, and proposed the weeks of June 11 or 18, 2012 for examinations for discovery.
[49] Relle submits that the court should not consider settlement discussions as a basis to find a reasonable explanation for the litigation delay since Apotex could have proceeded with the action even while engaged in such discussions. I do not agree.
[50] Parties should be encouraged to participate in settlement discussions without having to incur the costs associated with preparing affidavits of documents and participating in examinations for discovery, which may make settlement much more difficult. Relle’s position would discourage counsel from participating in settlement discussions during the course of litigation, if counsel were then to be faced with an argument that such time was not a reasonable explanation for litigation delay.
[51] Consequently, I find that frequent settlement discussions are a reasonable explanation for litigation delay without requiring a plaintiff to vigorously pursue the action during those settlement discussions.
[52] In this case, the uncontested evidence is that (i) Apotex sought to toll the limitation period in the fall of 2007 in order to “resolve Apotex’s potential claim and avoid the expense of litigation”; (ii) Relle retained former counsel in 2009 to engage in settlement discussions for the same purpose; and (iii) even after Relle retained Lenczner Slaght and required Apotex to initiate the Relle Action, frequent settlement discussions occurred.
[53] Consequently, while I agree that there are some gaps of unexplained delay, the overall evidence demonstrates a reasonable explanation for the litigation delay.
[54] Even if the settlement discussions did not constitute a reasonable explanation for the litigation delay, the steps taken by Apotex in the Relle Action far exceeded the steps in Koepcke, and a contextual approach taken in this case would still consider the settlement discussions as a factor supporting the court’s discretion to allow the Relle Action to continue.
(ii) Prejudice to the defendant
[55] Engaging in settlement discussions is not a risk-free approach to status hearings. A plaintiff will still be required to address the second Khan factor at a status hearing, i.e. demonstrating that the defendant would suffer no non-compensable prejudice. Further, a defendant may be able to demonstrate actual prejudice arising from the delay.
[56] I agree with Relle’s submission that Apotex did not lead sufficient evidence to demonstrate that Relle did not suffer non-compensable prejudice. However, such prejudice is attenuated by the evidence below.
[57] As Master Dash stated in Koepcke, it is the plaintiff’s obligation to lead “evidence before the court that the plaintiffs have preserved their own documents, that their memories are intact and their witnesses still [sic] available” (Koepcke, at para. 31). Apotex did not lead such evidence.
[58] However, Apotex led evidence that it delivered its affidavit of documents on May 4, 2012. In Apotex’s affidavit of documents, Apotex’s representative stated that: (i) “This affidavit discloses, to the full extent of my knowledge, information and belief, all of the documents relevant to any matter in issue in the action that are in Apotex’s possession, power or control, that were but are no longer in Apotex’s possession or that I believe are in the possession, power or control of a person who is not a party to the action”[^10] and (ii) “I am not aware of any other relevant document other than those that are listed in this affidavit or that are or were only in the possession, power or control of another party in the action”.
[59] Apotex failed to lead direct evidence before the court that it preserved all of its relevant documents. The court cannot rely on an affidavit of documents attached to an affidavit of counsel as truth of the contents of the statements in the affidavit of documents. Nevertheless, the affidavit of documents demonstrates that Apotex has taken steps to produce all of the documents it believes to be relevant to the Relle Action.
[60] Further, the events which led to the Relle Action arise from Relle’s alleged misrepresentations as to her authority to contract on behalf of FYSE. Details of those representations were fully set out in Apotex’s January 19, 2010 response to Relle’s demand for particulars, and included several “written communications” attached to Apotex’s response.
[61] Consequently, any evidence of prejudice resulting from the delay in prosecuting the Relle Action is attenuated since Relle had knowledge of the representations just over a month after Apotex issued the Relle Action.
[62] Relle submitted that she suffered actual prejudice as a result of the stress from the litigation, relying on a letter from her family doctor. I do not accept that such evidence demonstrates the “non-compensable” prejudice at issue on a contested status hearing.[^11]
[63] The prejudice at issue on a contested status hearing should be of the type to affect a defendant’s ability to present the case at trial, just as such prejudice is considered on a motion to set aside a registrar’s dismissal order, i.e. “the plaintiff must convince the court that the defendants have not demonstrated any significant prejudice in presenting their case at trial as a result of the plaintiff's delay” (Reid, at para. 41). Stress arising from litigation does not satisfy the test that a defendant’s ability to present the case at trial has been compromised by the delay.
[64] If Relle’s submissions were accepted, a defendant would suffer “actual” prejudice through stress without any evidence that the defendant’s ability to present the case at trial has been prejudiced. Such an approach is inconsistent with the settled law on motions to set aside dismissal orders.
[65] In any event, Relle is counterclaiming for the stress caused by the Relle Action, on the basis that the Relle Action is an abuse of process. To the extent Relle succeeds on that claim, she will be compensated for the damages caused by her stress.
[66] Consequently, I find that while Apotex has not met the second Khan factor, Apotex has led some (albeit insufficient) evidence to demonstrate that Relle would not suffer non-compensable prejudice.
(iii) Other contextual factors
[67] The context of the present case is similar to that discussed by Master Dash in Koepcke, in which he stated (Koepcke, at para. 37):
On the other hand, considering the delay contextually and considering fairness to both parties, I am of the view that the action should be permitted to proceed. The plaintiffs acted in good faith in not proceeding with this action and in avoiding costs to be incurred by both parties unless and until it became necessary to proceed with the action.
[68] Apotex acted in good faith and took active steps to communicate with Relle’s counsel to avoid costs through settlement discussions. Relle’s counsel acted in good faith through the settlement discussions.
[69] In contrast, the plaintiff in Koepcke had no contact at all with the defendant from the date the claim was issued until after receipt of the status notice. Nevertheless, Master Dash in Koepcke allowed the action to continue based on the good faith of the plaintiff and the explanation for why the action did not proceed.
[70] Further, as in Koepcke, the result of the Relle Action may depend on the related Main Action. As I discuss above, FYSE asserts in its statement of defence in the Main Action that Atlantic did not have authority to contract on its behalf. The determination of that issue both in fact and in law will likely have a significant effect on the Relle Action and could determine whether it is necessary to proceed with the Relle Action.
[71] While the existence of the Main Action does not give Apotex carte blanche not to prosecute the Relle Action[^12], it is a proper contextual factor supporting Apotex’s submission that the Relle Action should be allowed to continue.
[72] Relle submits that because she did not deal with Apotex in her personal capacity (but only as a representative of Atlantic), the court should consider that evidence in exercising its discretion.
[73] However, there is no motion before the court seeking an order that Apotex’s claim is untenable. Relle filed no law on the issue of personal liability for representations made on behalf of a corporate entity. Relle has not sought to dismiss the claim through summary judgment. There is settled case law that a corporate representative may be personally liable for misrepresentations in certain situations. Consequently, there is insufficient evidence and law before me to find a strong case on the merits in favour of Relle.
[74] There may be situations in which the merits of the case may be a relevant contextual factor for the court to consider on a contested status hearing (an issue I do not decide), but for the reasons I discuss above, this case does not present such a situation.
[75] Finally, I note that in Koepcke, Master Dash allowed the action to continue even though the plaintiff did not satisfy either of the Khan factors. In the present case, Apotex has satisfied the first Khan factor and led some evidence to address the prejudice issue. The present case presents an even stronger position to maintain the action than in Koepcke.
[76] Consequently, even though I find that Apotex did not lead sufficient evidence to satisfy the Khan factor of demonstrating non-compensable prejudice to Relle, I rely on Koepcke and find that on a contextual approach, “this is a case where fairness to the plaintiffs in having the actions determined on the merits outweighs the interest of the public in discouraging delay” (Koepcke, at para. 40).
Order and costs
[77] I order that the Relle Action continue pursuant to a timetable either agreed upon by the parties or, if necessary, set by me at a case conference to be scheduled with my assistant trial coordinator. I order a new set down date of June 7, 2013, subject to variation by the parties on consent or by court order.
[78] Both counsel agreed that the quantum of costs should be fixed at $2,000, which I find to be extremely reasonable given the status hearing records before the court, the research required for the contested status hearing, and the importance of the contested status hearing.
[79] Apotex’s counsel sought an order that the $2,000 in costs be payable in any event of the cause, which I find to be a reasonable and just result given that Apotex was successful on the issue before the court. An order of costs in the cause would not be appropriate. Consequently, I fix costs at $2,000 payable by Relle to Apotex in any event of the cause.
[80] I thank counsel for their thorough submissions which were of great assistance to the court.
Master Benjamin Glustein
DATE: June 8, 2012
[^1]: For the purposes of these reasons, I refer to the test as the “Khan test”, or “Khan factors” even though the initial formulation of the test was set out in Savundranayagam, particularly as Maser Dash uses the same terms in Koepcke v. Webster, 2012 ONSC 357, [2012] O.J. No. 230 (S.C.J. – Mast.) discussed in detail below. [^2]: (adopting the reasons of Master Dash in Koepcke, at para. 23) [^3]: (subject to issues of admissibility which I address below) [^4]: Relle pleads at paragraphs 14 and 15 of her statement of defence and counterclaim that Apotex threatened to sue Relle if she refused to toll the limitation period and that Apotex demanded “a statement from Mrs. Relle in relation to the [Main] Action”. However, Relle filed no evidence at this hearing to support that contention, so for the purposes of this hearing I adopt Apotex’s uncontested evidence as to the reason Apotex sought a tolling agreement. [^5]: It is unclear whether the word “it” refers to the lawsuit or the level of stress, but the distinction is irrelevant as there is no evidence that the stress has impaired Relle’s ability to defend the action, as I discuss below. [^6]: (argued in part on March 7, 2012) [^7]: (the statement of defence was filed on October 2, 2009) [^8]: (adopted from Reid v. Dow Corning Corp., [2001] O.J. No. 2365 (S.C.J. - Mast.) (“Reid”) at para. 41, reversed (but not on the factors to be considered on a motion to set aside a registrar’s dismissal order), [2002] O.J. No. 3414 (Div. Ct.)) [^9]: Apotex seeks to rely on a letter from its counsel attached to the affidavit filed by Relle’s lawyer that states that Apotex’s counsel “are presently engaged in a trial which commenced April 18” to explain some of the litigation delay. However, Apotex filed no evidence on the issue, and there is no evidence before the court as to the truth of the statement made in the letter. Consequently, I accept Relle’s position that there is no explanation for the litigation delay until the resumed June 2011 settlement discussions. [^10]: (there are no such “lost” documents set out in the affidavit of documents of Apotex’s representative) [^11]: I do not decide whether the evidence of Relle’s stress is admissible. Relle personally filed no direct evidence on the issue and her lawyer filed a letter from Relle’s family doctor without stating that she believed the contents to be true. Relle’s lawyer further stated in her affidavit that the litigation “is adversely affecting [Relle’s] health”, a statement on which a lawyer would likely not be able to opine. However, for the purposes of these reasons, I accept the evidence as admissible, since it does not establish actual prejudice in any event. [^12]: Relle is entitled to have the Relle Action move forward, although I make no comment as to whether the Main Action and Relle Action need to be tried together or made subject to a joint or similar timetable. I note that Apotex proposes in its statement of claim at paragraph 12 that the two actions be tried together.