ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-07-083322-00
DATE: 2012-02-07
B E T W E E N:
The Estate of Henry Goldentuler
Karl Girdhari, for the Plaintiff
Plaintiff
- and -
Robert Crosbie, Olga Leyenson, Mark Koskie, Gail Yattavong and KLC Law Firm (Corporation)
John Adair, for the Defendants
W. Zener, for Mr. Elkin
Defendants
HEARD: December 1, 2011
REASONS FOR DECISION
EDWARDS J.
OVERVIEW
[ 1 ] Procrastination, solicitor’s negligence, failure to properly look out for the best interests of one’s client, - even misleading statements to the court and possibly outright lack of candour – these are the hallmarks of how this matter is where it is today.
[ 2 ] What started out as the unseemly removal of files from a lawyer’s office in the early hours of the evening, and the inevitable litigation between the start-up law firm and the established law firm, has now degenerated into a series of procedural blunders, culminating in the defendants’ defence being struck out.
The Issue
[ 3 ] The defendants, who on all accounts were not well served by their former solicitor, have found themselves in the position where not only was their statement of defence struck out, but an appeal in relation to the order striking the defence was also unsuccessful. Specifically, the appeal was administratively dismissed not once, but twice. One might in these circumstances then consider the order striking the defence final, such that the defendants would have no standing when faced with a motion by the plaintiff for judgment and an assessment of damages.
[ 4 ] The issue of standing was decided by me in reasons that I released on June 17, 2011. Specifically, I agreed with the defendants that there was jurisdiction under rule 59.06 to hear the defendants. As well, I agreed that the Superior Court of Justice has an inherent jurisdiction to control its own process, so as to prevent an abuse of process. I acknowledged that on the limited record that I had before me in May 2011, that there was doubt as to what the defendants knew or did not know about the action or lack of action of their former solicitor. As such, I gave the defendants standing to argue that the order striking the statement of defence should be set aside.
[ 5 ] The fundamental issue that this case presents is at what point in time may a client no longer shield himself or herself behind the failures of their lawyer, such that the court may say that the client should have done more to prevent their defence being struck out. Adopting a sporting analogy: “Three strikes and you’re out”, one may question whether this analogy applies to the facts of this case, such that while the defendants were given standing to argue that their defence should be reinstated, that on the facts of this case there came a point in time when the defendants should have known that their position was in jeopardy and done more than simply rely on their former solicitor.
The Facts
[ 6 ] The plaintiff in this matter as it was originally constituted was a lawyer whose practice largely focused on plaintiff’s personal injury matters. Tragically, Mr. Goldentuler passed away on October 5, 2008, and it was not until April 2010 that an order was obtained to continue the action in the name of the Estate of Henry Goldentuler.
[ 7 ] The plaintiff in this action sues for the recovery of damages that were allegedly suffered when the defendants, Robert Crosbie (“Crosbie”) and Olga Leyenson (“Leyenson”) left Goldentuler & Associates (“Goldentuler”) on or about February 23, 2007. It is alleged that when Crosbie and Leyenson left they took various clients, together with the associated physical files with them to a new law firm, the defendant KLC Law Firm Professional Corporation (“KLC”).
[ 8 ] The defendants, Mark Koskie (“Koskie”) and Gayle Yattavong (“Yattavong”) had been employed by Goldentuler in late 2006. Koskie was a lawyer and Yattavong was a legal assistant. There is a dispute on the evidence as to whether Koskie and Yattavong were fired, but in any case, in late 2006 they ceased working for Goldentuler and subsequently began employment at KLC.
[ 9 ] If there is nothing else that the parties can agree upon, it can certainly be said that this litigation has been anything other than hotly contested. What follows is a chronology of that litigation that will assist in understanding the ultimate striking of the defendants’ defence and the unsuccessful appeal.
[ 10 ] On February 23, 2007, Crosbie and others are seen in surveillance videotape leaving the Goldentuler offices with a large number of boxes, that it is presumed likely contained client files and other materials. These files and materials ultimately found their way into the possession of the defendant KLC.
[ 11 ] On March 15, 2007, the statement of claim in this matter was issued. On April 5, 2007, the first of many motions came before this court. On April 5 DiTomaso J. granted a consent order which amongst other things required the defendants to return the physical files taken by them from the Goldentuler office. What is particularly noteworthy with respect to the order of DiTomaso J. of April 5 is that it was obtained on consent without the instructions of the defendants. The defendants’ solicitor, who was handling this litigation from the very beginning and until very recently, was Mark Elkin (“Elkin”). In relation to the order of April 5 and the conduct of Mr. Elkin in that regard, I reproduce paragraph 19 of the defendants’ factum as indicative of Elkin’s approach to this litigation:
It is clear that from the outset, Elkin handled this matter in the same way he handled other matters for Crosbie in the past: he did not do any reporting or seek any instructions. For example, Ms. Leyenson wrote to Mr. Elkin shortly after the April 5, 2007 consent Order and advised that she did not recall anyone providing him with instructions to agree to return the files. Mr. Elkin’s reply makes it clear not only that he intended to handle matters without communicating with the clients, but also that the defendants were immediately placed by him in a position where if they questioned his authority they might lose the only lawyer they had. Mr. Elkin wrote:
With respect to photocopying of the files, neither you [Leyenson] nor Bob [Crosbie] nor Mark [Koskie] consented to that. I made a decision on what I consider to be in your best interests. Please let me know if you want to take issue with my extending the consent and I will be happy to remove myself as your solicitor.
[ 12 ] The order of DiTomaso J. left the question of the costs of that motion to be dealt with at a later date. On May 10, 2007, the issue with respect to those costs was heard by Boyko J. who ordered costs be paid by the defendants to the plaintiff in the amount of $4,500. It is particularly noteworthy with respect to the attendance before Boyko J. that neither Mr. Elkin nor anyone from his office appeared, nor was any material filed in opposition to the plaintiff’s request for costs.
[ 13 ] As a result of the plaintiff’s perception that the order of DiTomaso J. had not been complied with by the defendants, a motion was served on the defendants personally, on May 18, 2007, for the purposes of having the defendants found in contempt.
[ 14 ] On May 30, 2007, Mr. Elkin served a motion on the plaintiff, seeking leave to appeal the order of Boyko J., specifically the awarding of costs. On all accounts that motion was never perfected and, therefore, no appeal was ever heard on it merits.
[ 15 ] The motion seeking to hold the defendants in contempt initially came before DiTomaso J. on May 29, 2007. Mr. Elkin did not attend, but sent someone in his place. Clearly, DiTomaso J. was of the view that Mr. Elkin should be in attendance and, as such, adjourned the motion to June 5, 2007. In addition, DiTomaso J. gave leave to the defendants to file affidavit evidence with respect to the contempt motion, this despite the fact that the defendants had already been noted in default.
[ 16 ] On May 31, 2007, Mr. Goldentuler wrote to Mr. Elkin, acknowledging the motion seeking leave to appeal the cost order of Boyko J. Mr. Goldentuler noted that the motion seeking leave to appeal was out of time.
[ 17 ] On June 5, 2007, the contempt motion came back before DiTomaso J., at which time he gave the defendants an additional 30 days to comply with his order and again, required that Mr. Elkin be in attendance. He also ordered that the parties should meet with counsel to review the issue of the outstanding files that at that time were alleged not to have been returned as required by his order.
[ 18 ] On August 22, 2007, the contempt matter again came back before DiTomaso J. and Mr. Elkin did not attend. The motion was adjourned to August 28 when DiTomaso J. ordered that Mr. Elkin, together with all of his clients were to be in attendance on September 27. When the contempt matter finely came back before DiTomaso J. on September 27, Mr. Elkin did attend with his clients and the contempt motion was argued. Given the quasi criminal nature of the motion, DiTomaso J. was not satisfied that contempt had been made out, but nonetheless, made an award of costs in favour of the plaintiff in the amount of $8,500 to be paid by the defendants. The award of costs was made because DiTomaso J. was of the view that the bringing of the contempt motion was because the defendants had not initially complied with his order of April 2007.
[ 19 ] On November 5, 2007, Mr. Goldentuler wrote to Mr. Elkin and indicated that he would be bringing a motion to strike the defendants’ statement of defence and counterclaim if the outstanding costs awards were not paid. At that point in time there were the outstanding costs awarded by Boyko J. and DiTomaso J. that had not been paid by the defendants.
[ 20 ] The issue of the outstanding payment of the costs awards came before Boyko J. on November 27, 2007. In attendance were Mr. Elkin and Mr. Goldentuler. At that time Mr. Elkin represented to the court:
“And my clients are intent on paying the order, your honour. They are in the process of getting financing. This is – I am acting for a law firm. It’s a – it’s a new – a new firm and they have applied for a – a line of credit through the bank and my partner, Dick McLean, is – is handling that transaction. It’s in the process of being processed.…”
[ 21 ] Having reviewed the entirety of the transcript of the proceedings before Boyko J. on November 27, I am left with the inescapable conclusion that the adjournment granted to Mr. Elkin on November 27 was because of his representation to the court that his clients were doing a refinancing at least in part to pay the outstanding costs awards. From my review of the entire record in this matter, there may be good reason to doubt the accuracy of that representation.
[ 22 ] On January 8, 2008, the plaintiff’s motion to strike out the defendants’ statement of defence and counterclaim for failure to pay the outstanding costs awards referenced above came before Ferguson J. On the morning of the motion but, prior to the actual hearing of the motion, it would appear that Mr. Elkin signed a letter to Mr. Goldentuler, indicating that he would not be attending court as he was not feeling well. Mr. Elkin was intent on having someone attend to adjourn the motion.
[ 23 ] This matter did come before Ferguson J. on January 8, 2008, at which time Ferguson J. reviewed the history of the motion before him and the fact that there had been three prior attendances. When the matter was called before Ferguson J., no one had arrived from Mr. Elkin’s office. Ferguson J., having reviewed the history of this matter then struck out the defendants’ statement of defence and counterclaim. Approximately an hour later counsel from Mr. Elkin’s office arrived in the courtroom and asked Ferguson J. to hear the motion on its merits. Justice Ferguson read his endorsement to counsel attending for Mr. Elkin and the transcript reveals the following exchange:
The Court: All right. I’ll read it to you anyway. “History of this motion, first return November 15 th before Justice Jenkins, adjourned to November the 27 th , pre-emptory on the defendants,” – that’s you. The endorsement is on the wrong file, but it’s in the court file. “Second return November 27 before Justice Boyko. Mr. Elkin attended and advised the defendants were seeking financing and he requested an adjournment.” Sorry, the first adjournment was pre-emptory. Then he requested another one. “Adjourned to January the 2 nd . Registrar called counsel for the plaintiffs and advised there was no judge for January 2 nd . The trial coordinator subsequently called the plaintiff’s counsel and advised that Elkin had said new dates of January 8 or 15 were satisfactory. The plaintiff’s counsel served a confirmation notice on January the 4 th that the motion would be heard on January the 8 th at 9:30. No one appeared for the defendants as of 10:25. The defendants have never filed any material in response to this motion. In my view this is a proper case to make an order under rule 57.03. I order that the defence and counterclaim are hereby struck. I think the bill of costs is high and that the travel time and rate should be reduced. I fix the costs of the three attendances on the motion at $3,100.00, payable forthwith.” Then I added, “At 10:35 Ms. Nitchke now attends from Elkin’s office and requests an adjournment. She advises that Elkin is ‘under the weather’ and cannot come and requests an adjournment. She does not know why Mr. Elkin’s personal attendance is required. I decline to change my endorsement.”
So that’s what I’m going to do. I’m not blaming you, but just so you would understand, this is not an appropriate way to litigate. It sounds to me like Mr. Elkin is looking to get himself in more trouble.
Ms. Nitchke: I hope not.
The Court: Having read the file, take that message to him from me.
Ms. Nitchke: Okay.
The Court: I hope you don’t follow his example. Thank you.
Mr. Goldentuler: Thank you, Your Honour.
The Court: She will make a copy for you.
Ms. Nitchke: Thank you, Your Honour.
[ 24 ] To this point in time, my review of the record leads me to the conclusion that the defendants were not being kept advised by Mr. Elkin as to what was occurring in court. They simply did not know that the statement of defence and counterclaim was at risk of being struck out for failure to pay outstanding costs awards. By January 14, 2008, however, Mr. Koskie clearly would have known that they were in jeopardy. On January 14, 2008, Mr. Goldentuler writes a letter to the Law Society of Upper Canada, a copy of which is sent to Mr. Koskie. The letter to the Law Society provides the plaintiff’s version of the history in relation to the removal of the files from the Goldentuler offices to KLC. Perhaps more importantly, however, the letter also gives a history of the litigation. In that regard, Mr. Goldentuler’s letter refers to the fact that Boyko J. had made an order with respect to costs and that a leave to appeal application had been filed by Mr. Elkin, but had been served out of time and that there had been a failure to perfect the appeal in accordance with the Rules. The net result was a dismissal of the appeal by the Registrar. In addition, Mr. Goldentuler’s letter refers to the fact that the costs that had been ordered by DiTomaso J. on September 27 in the amount of $8,500 remained unpaid. Finally, the letter of Mr. Goldentuler to the Law Society refers to the fact that the defendants’ statement of defence had been struck out and, that Mr. Elkin had not attended on the motion that came before Ferguson J. The letter to the Law Society concludes with an indication that, because of the outstanding costs awards, that at that point totalled in excess of $16,000, Mr. Goldentuler would be taking the required procedural steps to serve writs of seizure and sale.
[ 25 ] As it relates to the outcome of the motion before me, I pause and note that in Goldentuler’s letter to the Law Society, it was not copied to anyone other than Mr. Koskie. Mr. Crosbie in his affidavit before me does acknowledge that he became aware of the contents of this letter by approximately January 15. Ms. Leyenson in her affidavit acknowledges that Mr. Goldentuler’s letter of January 14, 2008, was brought to her attention by Mr. Koskie on or about January 14, 2000.
[ 26 ] The letter of January 14 from Mr. Goldentuler to the Law Society is responded to by Mr. Koskie by correspondence dated January 18, 2008, to the Law Society. Mr. Koskie responds to the various issues raised by Mr. Goldentuler in relation to the removal of the files, but in relation to the procedural history that was dealt with by Mr. Goldentuler, Mr. Koskie replies as follows: “As for any motions scheduled in November 2007 and January 2008, I leave this matter to be addressed by our solicitor Mr. Elkin….” It is apparent from Ms. Leyenson’s affidavit, (that is adopted by Mr. Crosbie) that Mr. Koskie’s January 18 letter was a joint effort.
[ 27 ] There is no indication in Mr. Koskie’s letter, nor is there any real indication on the part of the defendants, that they were taking seriously the fact that there was evidence before them that Mr. Elkin was not looking after their best interests. This is borne out by reason of the fact that Mr. Goldentuler clearly makes note in his letter to the Law Society of January 14, 2008, that as far back as the costs order of Boyko J. in May 2007, Mr. Elkin had not taken the necessary steps to properly appeal that order with the net result that the order stood requiring the defendants to pay $4,500 in costs. To simply say that they were leaving to Mr. Elkin to sort out the events of September 2007 and January 2008 that resulted in their defence had been struck out was foolhardy at best. Having then received an indication that Mr. Goldentuler was going to take steps to issue writs of seizure and sale, one may seriously question whether or not these defendants now can simply shelter behind the inappropriate conduct of their solicitor so as to allow them to have their statement of defence restored.
[ 28 ] As of January 2008, the record makes crystal clear that Mr. Elkin was not acting in the best interests of his clients. The defendants’ statement of defence had been struck out. Outstanding costs awards in excess of $16,000 had to be paid by the defendants. At this point, one might have thought that Mr. Elkin would have moved heaven and earth to ensure that the defendants’ appeal rights were fully protected in relation to the order striking the defence. The record regrettably establishes that Mr. Elkin’s conduct continued unabated.
[ 29 ] A notice of appeal was served by Mr. Elkin on February 8, 2008, with respect to the order of Ferguson J. of January 8. On February 13, 2008, Mr. Goldentuler sent to Mr. Elkin the certificate that is required by the Court of Appeal with respect to evidence required to be filed. On March 4, 2008, Mr. Goldentuler sent to Mr. Elkin a motion record seeking security for costs. The security for costs motion came before the Court of Appeal on March 13, 2008. Remarkably, no material was filed by Mr. Elkin on behalf of the defendants. The motion came before Blair J.A. An order was made requiring the defendants to pay $12,000 into court as security for costs within 30 days. The defendants were also ordered to obtain the transcripts of the hearing before Boyko J. and Ferguson J. Noteworthy with respect to the motion of March 13 is not only the fact that no materials were filed, but Mr. Elkin did not attend. He had one of his colleagues attend in his place as he was apparently away on holiday.
[ 30 ] In April 2008 the defendants’ appeal was dismissed by the Registrar, necessitating a motion by the defendants to set aside the Registrar’s order. This motion came before Moldaver J.A. on April 22, 2008. In his endorsement, Moldaver J.A. made clear that he had serious reservations about the merits of the appeal, but nonetheless, set aside the Registrar’s order dismissing the appeal and required that the defendants perfect the appeal within 15 days of the transcripts being ready. The transcripts of the proceedings before Boyko J. and Ferguson J. were both filed before me. The transcript of the proceedings before Boyko J. on November 27, 2007, was ordered on February 7, 2008, and completed on April 7, 2008. A transcript of the proceedings before Ferguson J. was ordered on February 7, 2008 and completed on April 17, 2008. It defies logic, then how, despite the indulgence granted to Mr. Elkin and his clients by Moldaver J.A. that the appeal was never properly perfected. On June 10, 2008, Mr. Goldentuler wrote to Mr. Koskie. While the tone of the letter is anything but cordial, the second to last paragraph of the letter should at least have alerted Mr. Koskie to the fact that his appeal had been administratively dismissed, but reinstated by Justice Moldaver. As I indicated to counsel during the course of argument, this letter surely must have been seen by Mr. Koskie as one of a number of red flags with respect to the conduct of Mr. Elkin during the course of his representation of the defendants. It is also important to note that Goldentuler’s letter of June 10, 2009, was according to Leyenson’s affidavit “raised” by Koskie with her and Crosbie.
[ 31 ] On June 11, 2008, Mr. Koskie wrote to Mr. Elkin and it is clear that the letter of Mr. Goldentuler of June 10 had struck a serious note with Mr. Koskie (and presumably Leyenson and Crosbie) in terms of the representation that they were receiving from Mr. Elkin. There does not appear from the record however, to have been any reply made by Mr. Elkin to Mr. Koskie’s letter of June 11. Leyenson in her affidavit indicates that as a result of the Goldentuler letter of June 10, Crosbie spoke to Elkin who advised Crosbie that the costs awards were paid because Mr. Elkin’s office had paid the $12,000 into court.
[ 32 ] Subsequent to the discussions between Crosbie and Elkin which had been precipitated by the Goldentuler letter of June 10, 2008, Leyenson in her affidavit (adopted by Crosbie), deposes that she was of the impression the costs awards were paid and that the appeal before the Court of Appeal was proceeding. Crosbie in his affidavit indicates that in this time period he would occasionally discuss the status of the action with Mr. Elkin and was advised “everything was under control…I trusted Mark to handle it”.
[ 33 ] The next event of consequence with respect to this litigation would appear to be the unfortunate passing of Mr. Goldentuler in early October 2008.
[ 34 ] In January 2009 the defendants’ appeal was again administratively dismissed. The order of Ferguson J. striking the defendants’ statement of defence and counterclaim was therefore final.
[ 35 ] There can be little doubt that the conduct of Mr. Elkin with respect to the handling of the litigation on behalf of the defendants, as reviewed above, fell far short of what would be expected of any counsel appearing before this court. Whether it is to Mr. Elkin’s credit or not, he appeared before the Law Society of Upper Canada on May 4, 2011, in connection with the hearing into whether the Law Society should grant Mr. Crosbie paralegal status. Mr. Elkin’s appearance became necessary in relation to an allegation that Mr. Crosbie had not paid the various costs awards that have been referenced above. The manner in which Mr. Eklin conducted the litigation on behalf of the defendants was reviewed at some length before the Law Society. His conduct was also reviewed in his own affidavit filed before me. As to how Mr. Elkin dealt with communications with his clients in terms of keeping them informed with respect to issues relating to this subject litigation, I reproduce the following paragraphs from his affidavit:
Although I was retained in this matter by all of the defendants, I really treated Mr. Crosbie as the only client. I acted as though Mr. Crosbie had implied authority from all of the other defendants to deal with me on their behalf, and indeed I understood that he did have such authority. To be candid, I did not pay much heed to any communications with any of the other defendants, and if they inquired about any matter with respect to this action, I would generally simply tell them that I was handling it and they should not worry.
In keeping with the approach described above, I do not believe that I communicated very much at all to the defendants about what was happening in this case. I know that I did not see that it was necessary to advise them of the details of the court orders, including costs awards. I did tell them whatever I felt had to be communicated to allow them to continue to move the litigation forward. For example, I recall telling them that they had to provide the plaintiff with copies of the files they had taken, even though I did not specifically apprise them of the terms of the April 5, 2007 Order.
I would not have and, to the best of my knowledge, did not tell the defendants about any adverse costs awards. I would have made the decision myself about whether or not to appeal those costs awards, and did not generally consider them to be particularly important, as I knew that they could be dealt with at a later date if necessary. I was hoping throughout that I would be able to settle this litigation quickly.
This case has quite obviously gone far off the rails, which is a result of my failure to address certain matters and to communicate with the clients. Unfortunately, I ran this case as though it were really I who was the client, in that I did not see any particular need to seek any instructions from anyone, including Mr. Crosbie. In my view I was acting for a friend, and one who trusted me to handle the affair in his best interests.
I know that the resulting $4,500 costs Order must have come to my attention, because my office subsequently filed a notice of motion for leave to appeal. I would have been upset about an award in that amount from a motion that was simple and resolved on consent, so I am not surprised that I decided to appeal it. However, the $4,500 costs award is not the kind of thing that I would have advised Mr. Crosbie about. I would have determined that it should be appealed, and simply done so of my own initiative.
[ 36 ] With respect to the motion that came before Ferguson J. to strike out the defendants’ statement of defence, and the failure to file any material in response to that motion, Mr. Elkin notes in his affidavit at paragraph 26: “I cannot explain how that could have happened other than to say we made an error that was exclusively my fault.”
[ 37 ] As to why Mr. Elkin did not advise the defendants with respect to the order of Ferguson J. striking out the statement of defence, remarkably, he states in his affidavit that this was only “a procedural issue” and therefore, he did not feel it necessary to advise his clients of the clear jeopardy that they found themselves in.
[ 38 ] With respect to the totality of his actions at paragraphs 49 and 50 of his affidavit, Mr. Elkin, perhaps to his credit, accepts full responsibility for the unpaid costs awards and the fact that the defendants’ statement of defence was struck out. I reproduce paragraphs 49 and 50 of Mr. Elkin’s affidavit as follows:
I took then and am taking now full and complete responsibility for the fact that there were unpaid costs awards, and for the fact that the defendants’ Statement of Defence was struck and that the situation was not remedied.
I do not believe that the defendants have ignored any court orders or otherwise disregarded this process. Instead, I made the mistake of handling this as though I were the client and failing to sufficiently inform them of what was going on. I had hoped that this matter would go away or could be settled (and later believed that it had been settled).
Analysis
[ 39 ] The defendants make clear throughout their affidavit material and have made clear to me in the very able argument of Mr. Adair, that they trusted Mr. Elkin and that their trust was based on a long standing history of having dealt with Mr. Elkin in the past. Accepting for the moment that the defendants, like all clients, can repose trust in their solicitor to act in their best interest with respect to litigation before this court, the issue as I frame it, is whether there is a point in time that the defendants can no longer hide behind their trust in their lawyer as a basis for the order that is now being sought?
[ 40 ] I frame the issue in this manner as it is clear, even from the defendants’ own material and specifically the affidavit of Olga Leyenson, that by mid January 2008 her confidence (and presumably the confidence of the other defendants) in Mr. Elkin was shaken by reason of the news that their defence had been struck out and there were outstanding costs awards. Ms. Leyenson indicates in her affidavit: “…I was of the view in the circumstances that Mr. Elkin had made an error, but that he had promised to fix it. I also relied on Mr. Crosbie’s long standing relationship with Mr. Elkin, and I gave Mr. Elkin the benefit of the doubt.”
[ 41 ] Was it appropriate for Ms. Leyenson and the defendants to give Mr. Elkin the benefit of the doubt? At this point in time, what knowledge did the defendants have with respect to Mr. Elkin’s conduct that should have raised serious red flags as to whether Mr. Elkin should be someone in whom the defendants could place their trust to properly appeal the order of Ferguson J. to the Court of Appeal, such that they had a realistic prospect that the statement of defence would be reinstated, presumably on terms.
[ 42 ] The red flags that in my view were clearly within the defendants’ knowledge were as follows:
Mr. Elkin had entered into a consent order before DiTomaso J. in April 2007 for the return of the files without instructions from any of the defendants.
The defendants had been forced to attend a motion before DiTomaso J. on September 7, 2008, when they were possibly facing a finding of contempt.
Mr. Goldentuler’s letter to the Law Society in early January 2008, a copy of which was sent to Mr. Koskie, provided information relating to their statement of defence being struck out (of which they at that point had no knowledge) and the fact that there were outstanding costs awards. Mr. Koskie’s response to the Law Society leaves one with the impression that he and the other defendants were content to simply leave the so-called procedural irregularities for Mr. Elkin to handle.
In the fall of 2008 Mr. Koskie had taken upon himself to attend at the Court of Appeal office and discovered that the defendants appeal had been already administratively dismissed on one occasion.
[ 43 ] Mr. Koskie in his affidavit notes that the administrative dismissal had been set aside, but that the appeal had not been perfected. There is no indication on the material before me that anything else was done by Mr. Koskie or any of the other defendants in relation to Mr. Elkin’s perfecting of the appeal. In short, I am left with the distinct impression that the defendants, misguided as they may have been in their trust in Mr. Elkin, did absolutely nothing to protect themselves by retaining the services of new counsel to ensure that they would no longer be presented with the types of red flags that they had been presented with on more than one occasion.
Position of the Defendants
[ 44 ] The defendants argue that this court, as a Superior Court of Justice, has an inherent power to regulate and control its own process and that, in the circumstances of this case, such power should be exercised in order to achieve a fair trial on the merits of the case. It is suggested that there are no rules in the Rules of Civil Procedure that would prevent this court from exercising its inherent jurisdiction so as to allow the defendants to file their statement of defence. By analogy, it is argued that if a judgment obtained following a default trial can be set aside under rule 19.08, it makes no sense that an order striking a statement of defence cannot also be set aside.
[ 45 ] The defendants rely heavily on the decision of the Court of Appeal in Halton Community Credit Union Ltd. v. ICL Computers Ltd. (1985), 1 CPC (2d) 24, where a default judgment had been obtained largely as a result of the inaction of the defendants’ solicitor in failing to file a statement of defence. In that regard, the fundamental principle that has been followed since is as follows:
Undoubtedly counsel is the agent of the client for many purposes, including (in most cases) the power to make a binding settlement, but it is a principle of very long standing that the client is not to be placed irrevocably in jeopardy by reason of the neglect or inattention of his solicitor, if relief to the client can be given on terms that protect his innocent adversary as to costs thrown away and as to the security the legal position he has gained. There may be cases where the plaintiff has so changed his position that this is impossible.
[ 46 ] There is no doubt, based on the facts that I have reviewed above, that there has been neglect, inattention and possible negligence in the manner in which Mr. Elkin conducted this litigation on behalf of the defendants. During the course of argument, Mr. Adair did not seriously dispute such a conclusion, nor is it seriously disputed in Mr. Adair’s factum. Mr. Zener, who was present in court on behalf of Mr. Elkin, made no submissions to the contrary – although, to be fair to Mr. Zener, he attended at my invitation to address any possible issues that may have arisen regarding the costs of this motion.
[ 47 ] Accepting that there has been such neglect and inattention that clearly has jeopardized the defendants, should this court exercise its discretion in the face of what I have described as red flags that demonstrate the defendants had knowledge of some of the events that show Mr. Elkin’s lack of attention and neglect?
The Plaintiff’s Position
[ 48 ] The plaintiff argues that this court does not have any inherent jurisdiction to set aside the order of Ferguson J., striking the defendants’ statement of defence. It is argued that rule 59.06 (2) (a) does not create a substantive right to set aside a judgment or order and that this rule does not give the court inherent jurisdiction to vary. With respect, that issue was determined by me in my reasons of June 17, 2011. Much of the case law to which plaintiff’s counsel referred me to relates to cases where one party sought to set aside a judgment on the basis of fresh evidence. These cases rightly point to a due diligence test, but are of little help to the particular facts before me. The cases relied upon by the plaintiff, for the most part, dealt with situations where the matter had been dealt with on the merits after a trial or a summary judgment motion. Both parties were before the court. In the case before me, if I do not grant the relief sought by Mr. Adair, this case will proceed to an uncontested damages hearing.
Analysis
[ 49 ] If I am to be guided by that fundamental principle of ensuring that a litigant is not to be irrevocably placed into a position of jeopardy because of the neglect of his or her lawyer, what factors should this court consider in exercising its discretion in favour of the defendants, and what factor should be considered against the defendants in refusing to exercise that discretion?
[ 50 ] Much guidance can be obtained in answer to those questions by referring to how this court has dealt with motions to set aside the noting in default of a party or default judgment. The following factors are generally accepted as appropriate considerations on such a motion:
Has the defaulting party given an adequate explanation for the inaction that led to the default?
Does the defendant have an arguable defence?
The relative prejudice to the plaintiff and defendant, if the default is not set aside.
See Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd. et al , 2007 ONCA 333 (Ont. C.A.)
Explanation for the Delay
[ 51 ] As to the explanation as to why the defendants now find themselves in the position that they are now in, I have concluded that this is, at best, a neutral factor. While the explanation is largely focused on the neglect and inattention of Mr. Elkin, as I have already noted, the defendants had many red flags that should have alerted them to the failure of their lawyer and how those failures were putting themselves into a position of jeopardy. If this factor alone was the only factor that I was called upon to consider in determining whether to exercise my discretion to set aside the order of Ferguson J., I would have declined to do so. It is not, however, the only factor.
Prejudice
[ 52 ] Mr. Girdhari argues that the plaintiff is prejudiced by reason of Mr. Goldentuler’s death. It was his law firm that suffered the alleged loss of files that were removed by the defendants in 2007. Without his evidence on both liability and damages issues, it is submitted that the plaintiff has been clearly prejudiced.
[ 53 ] The difficulty with this argument is that Mr. Goldentuler died in October 2008. The action was started in March 2007. There is no evidence before me to suggest that this matter would have been at trial before Mr. Goldentuler died. I can only speculate as to whether discoveries may have been completed before his death but, given the procedural history of this matter, I have concluded that even the completion of discoveries by October 2008 was highly unlikely. As such, if the plaintiff has been prejudiced by reason of Mr. Goldentuler’s death, the prejudice was not caused by the defendants. Those cases where parties seek to set aside an act of default that addresses the issue of prejudice, make clear that the prejudice being asserted must be caused by the defaulting party. (See DiMarco v. Moss 2004 CarswellOnt. 147 (C.A.) ) The unfortunate passing of Mr. Goldentuler, and the problems that this may cause for the plaintiff, were not caused by the defendants. On this aspect of the test then, the defendants have satisfied me that there is no prejudice that the plaintiff can rely upon that was caused by the defendants.
Defence on the Merits
[ 54 ] The last issue that I must consider is whether, on the material before me, the defendants can show a defence on the merits. A defence on its merits must address both liability and damages issues. I am satisfied, from my review of the materials before me, that there will be significant legal and factual damages issues that this court will have to deal with, whether it be by a damages assessment or at trial. Those issues, in my view, are better addressed in a contested hearing. As such, on this aspect of the test that I must apply, the pendulum is tipped in favour of the defendants.
Conclusion
[ 55 ] The facts of this case are particularly egregious when it comes to an assessment of the neglect and lack of attention by the defendants’ solicitor that ultimately led to the position the defendants now find themselves in. That said, as I framed the issue at the beginning of these reasons, there may come a point in time when the client can no longer shelter behind their lawyer’s neglect, such that the court may say that the client should have done more to avoid having their defence struck out. The facts of this case were a close call. Certainly if the only issue I had to consider required the defendants to provide an adequate explanation for why they found themselves in a default position under the rules, I would have found against the defendants. As noted above, while Mr. Elkin clearly shoulders responsibility for having put his clients in jeopardy, there were enough red flags, of which the defendants were clearly aware, that the defendants in my opinion should have done more than simply deferred to Mr. Elkin. This is particularly so given their legal background.
[ 56 ] The interests of justice in general dictate that litigation between the parties should be decided on the merits and not on a technical basis. While there is no prejudice to the plaintiff in this case, fairness dictates that this case should be decided where both sides can test the issues of liability and damages. The rules are intended to provide a structured framework within which litigation is to be conducted. The rules should not be used, and abused as they were in this case, so as to prolong and add unnecessary costs to the parties. While my order allowing the defendants to re file their statement of defence may be seen by some as adding further cost and further prolonging this litigation, in reality my order will, as rule 1.04 dictates, secure the just determination of this proceeding – albeit perhaps not necessarily the most expeditious and least expensive determination. Fairness must be done between the parties, and this order will allow for such fairness. An order shall issue setting aside the order of Ferguson J., and allow the defendants to file their statement of defence and counterclaim as previously filed. Such filing shall take place within 30 days of this order.
[ 57 ] In order to ensure that this matter proceeds in a timely and orderly fashion, I intend to case manage this case in accordance with the inherent powers that are reviewed at length by D.M. Brown J. in Abrams v. Abrams (2010), 2010 ONSC 2703 , 102 OR (3d) 645 paragraphs 46 - 56 . As the issue of case management was not addressed in argument, counsel may consider putting together a timetable, on consent, for my approval by no later than February 20, 2012, or alternatively arrange through the trial co-ordinator a time to address this issue. A timetable that counsel may wish to consider should address the usual procedural timelines for productions, discoveries, completion of all interlocutory motions, exchange of experts’ reports and pre-trial. It is my intention to case manage this matter so as to ensure that this case is ready for pre-trial before me by no later than January 31, 2013, and thereafter ready for trial by no later than the Spring sittings 2013.
[ 58 ] As to the issue of costs, this issue was briefly addressed at the close of argument and I was led to believe by Mr. Zener that, if the outcome was favourable to the defendants, the issue of costs would likely be resolved between counsel. If costs cannot be resolved in that fashion, counsel may provide brief written submissions to the court to be received no later than February 20, 2012.
Justice M. Edwards
Released: February 7, 2012