SUPERIOR COURT OF JUSTICE - ONTARIO
(HAMILTON) COURT FILE NO.: 01/5744
RE: Royal Bank of Canada, Plaintiff
AND:
David Dodwell and Richard Joseph Stoltz, Defendants
BEFORE: The Honourable Justice C.A. Tucker
COUNSEL: Colleen Yamashita, Counsel for the Plaintiff
Amanda M. Chapman, Counsel for the Defendant, David Dodwell
HEARD: October 12, 2012
ENDORSEMENT
issues
(I) Should the plaintiff’s action be dismissed for delay?
(II) Should the defendant, David Dodwell, be granted summary judgment against the plaintiff as there is no genuine issue requiring a trial?
(III) Should the plaintiff be granted summary judgment as there is no genuine issue for trial?
BACKGROUND
1Paul Theil Associates Limited (“Associates”) was a customer of the Royal Bank of Canada (“Royal Bank”) and had been granted an operating line of credit with Royal Bank in 1997. Originally the line was for $150,000, which was increased in 1999 to $250,000. Mr. Dodwell executed a guarantee of the indebtedness of the Associates to Royal Bank on June 21, 1997. The guarantee was limited to $75,000 in principal and bore interest at the rate of prime plus 1.250 percent. Mr. Dodwell was a 50 percent owner of the Associates at the time. There is no issue about the validity of the guarantee. Mr. Dodwell acknowledges that he signed it. He claims he is no longer liable to the Royal Bank for the reasons discussed below. There is also no dispute that the Royal Bank is owed $205,178.35 by the Associates, which is in excess of the amount guaranteed by Mr. Dodwell. Accordingly, there is no issue about loan balance and prima facie the liability of Mr. Dodwell.
2On March 1, 2000, Mr. Dodwell sold his shares in the Associates. He remained an employee of the company until the fall of that year but was no longer an officer, director or shareholder. The Royal Bank knew of the sale of shares but was never asked for or granted a release of the guarantee in question. Mr. Dodwell’s former partner, Mr. Stoltz, by an Indemnity Agreement given on the sale, agreed to hold Mr. Dodwell harmless from any claims in connection with the Associates. Mr. Stoltz also agreed, by an Undertaking and Indemnity Agreement, to hold Mr. Dodwell harmless against claims of the Royal Bank on his guarantee. In August 2000, a draft agreement of sale was sent to the Royal Bank for their consent, which was granted. This agreement purports to transfer some of the assets of the Associates to another company, Engineered Management Systems Inc. (“EMSI”). Mr. Stoltz was the principal of EMSI. It is unclear that this transaction was ever completed; all that we have is the draft of the proposed agreement. Prior to EMSI’s incorporation and to the knowledge of Mr. Dodwell, while he was a shareholder of Associates, the business that became EMSI was a division of the Associates. The Associates made an assignment in bankruptcy on August 31, 2001. Mr. Stoltz filed an assignment in bankruptcy on July 18, 2002, after Royal Bank obtained a default judgment against him. Demand was made on Mr. Dodwell’s guarantee and an action was commenced against him by the Royal Bank on December 6, 2001. Eleven years later the matter has not been brought to trial. It appears that attempts were made to set up discoveries between 2004 and 2008, and eventually in 2006 the bank prepared an affidavit of documents. Mr. Dodwell did his affidavit of documents in August 2008. Discoveries were held in 2009 and Mr. Dodwell quickly fulfilled his undertaking while the Royal Bank took another two years to fulfill some but not all of its undertakings. This delay is explained by the plaintiff as resulting from one lawyer leaving the firm and another going on maternity leave. In late summer of 2012, these motions are brought.
DISCUSSION
3The defendant claims that the guarantee is no longer enforceable on the following grounds:
(a) he sold his shares in 2000;
(b) Mr. Stoltz was to indemnify him against such claims, and he declared bankruptcy;
(c) the Associates declared bankruptcy;
(d) the Royal Bank allowed funds advanced to the Associates to be given by Mr. Stoltz to EMSI;
(e) Assets were sold by the Associates with consent of Royal Bank altering the credit terms materially.
4For these reasons the claim should be dismissed based upon Rule 20.04(2.1) that there is no genuine issue for trial.
5The plaintiff claims that it is entitled to judgment on a summary basis as neither the loan balance or the liability of Mr. Dodwell under the guarantee is disputed. The relevant documents are all acknowledged to have been signed by Mr. Dodwell and are still in existence. On this basis there is no need for a trial to get a “full appreciation” of the issue and to make a determination.
6In the alternative, the defendant claims that the plaintiff’s action should be dismissed for delay. The length of time that has elapsed leads to a presumption of prejudice which cannot be rebutted by the plaintiff’s explanations. If such presumption could however be rebutted, actual prejudice has occurred since even though the material witnesses are available memories have long since faded. Further, documents are no longer available, being the banking records of Associates from March 2000 to August 2001, and a March 20, 2000, $50,000 deposit entry is unlikely to be retrievable. The plaintiff says that this is a document case, the need for witnesses is limited, the relevant documents are still producible and have been produced. Further, the witnesses are still available and no actual prejudice has been suffered by the defendant, Mr. Dodwell, save and except for the emotional strain of this litigation. In addition, there will be no need for a trial if summary judgment is granted so the issue of trial fairness is not a problem
DECISION
7For the following reasons I dismiss Mr. Dodwell’s motion and grant summary judgment to the plaintiff. Although I cannot fathom the reason for the 10 year delay in bringing this matter to court, and I empathize with the terrible strain that this delay must have caused Mr. Dodwell and his family on top of the litigation, I find no basis in law either to grant him summary judgment or to dismiss the plaintiff’s claim for delay.
8Mr. Dodwell signed a continuing guarantee of Associates. By the wording of the guarantee, this liability would survive the bankruptcy of Associates, the change in assets of Associates, the change in the ownership of the Associates, and the bankruptcy of his indemnifier and co-guarantor Mr. Stoltz. Mr. Dodwell’s real issue is with Mr. Stoltz. Mr. Dodwell’s claim, if any survived bankruptcy, would be against him for failing to obtain the release of his guarantee. The guarantee was never released. The indemnity of the third party was only as good as his solvency. If a guarantor was released by selling his shares, or having the guaranteed company declare bankruptcy, there would be little point in obtaining guarantee. Funds may have been improperly diverted by Mr. Stoltz but we do not know this. Even if the records were available and proof was shown of funds from the Associates line being used for EMSI, the culpable person is Mr. Stoltz, not the Royal Bank. Unfortunately Mr. Stoltz, having declared bankruptcy, is immune from most such claims. It is not clear that the asset sale ever transpired but even if it did, it did not alter the terms of the credit facility itself at all, let alone in a material way and the guarantee would survive that sale.
9I agree with the plaintiff that the relevant documents are available and that this is a document driven case in which further evidence is unnecessary and that there is not on the record before me any genuine issue requiring a trial that I find. The presumed prejudice can be rebutted and in the circumstances no actual prejudice is suffered. This is underlined by the fact that I can and do grant summary judgment to the plaintiff. Accordingly, I grant summary judgment to the plaintiff in the amount of $75,000 . Given the delay in prosecuting this matter, if the parties are unable to agree upon the amount of interest that would be payable, I would be prepared to receive written submissions on this point. Although the rate is clear on the guarantee, it may be that there is an argument about a reduction of interest and this was not dealt with in the arguments by either party.
10If the parties are unable to agree upon costs, I may be spoken to. I would note that I would consider the 10 year delay an important factor in reducing any claim made by the successful party in costs. Given my decision, this matter could and should have been dealt with in a summary a long time ago, which would have reduced the stress and costs of the litigation.
Tucker, J.
Date: October 29, 2012
(HAMILTON) COURT FILE NO.: 01/5744
DATE: 2012/10/29
ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: Royal Bank of Canada Plaintiff - and – David G. Dodwell and Richard Joseph Stoltz Defendants ENDORSEMENT Tucker, J.
Released: October 29, 2012