COURT FILE NO.: 06-CV-35315
MOTION HEARD: 2013/09/10
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Barry McPeake, Plaintiff
AND:
Cadesky and Associates and Barry Seltzer, Defendants
BEFORE: Master Pierre E. Roger
COUNSEL: Allan R. O’Brien, lawyer for the Plaintiff/Moving Party
Gaynor Roger, lawyer for the Defendant, Cadesky and Associates
Alfred J. Esterbauer, lawyer for the Defendant, Barry Seltzer
HEARD: September 10, 2013
REASONS FOR DECISION
[1] This is a motion seeking to reinstate this action, dismissed by the Registrar as abandoned. The action was administratively dismissed for delay (no defence filed) on May 7, 2007.
[2] What distinguishes this matter from other motions seeking to set aside an administrative dismissal is that, in this action, the parties had initially agreed that the action would be held in abeyance or, as per the correspondence, adjourned sine die. Subsequently, as explained below at paragraphs 31 to 33, a different order was obtained.
Factual background
[3] This action relates to allegations of professional negligence against a lawyer, the Defendant Seltzer and a firm of chartered accountants, the Defendant Cadesky, relating to the formation and constitution of a family trust for McPeake. This trust was created to limit tax exposure arising from a share transaction, the sale of shares in Zoomit. The three shareholders of Zoomit, including McPeake, were advised to create individual family trusts.
[4] The events giving rise to this action occurred in late 1996 and early 1997, when the McPeake Family Trust was created. Who was involved in its creation is now very much in dispute.
[5] Years later, in 2004, McPeake received a notice of reassessment from Revenue Canada asserting that the McPeake Family Trust was not valid and that it owed taxes in the amount of $1,444,630.00.
[6] One of the other shareholders who also created a family trust, Bahl, was also reassessed by Revenue Canada for $695,616.11. In 2004, he commenced a lawsuit in Ontario against Cadesky having Court File No. 04-CV-272445 CM2 (the Bahl action). Later, Seltzer was added as a party to the Bahl action. The Bahl action is ongoing.
[7] In April 2004 Barber was retained by the Plaintiff in this action to put Cadesky and Seltzer on notice.
[8] By letter dated May 13, 2004, Barber wrote to the Defendants requesting that they provide copies of their respective files and that they put their E. & O. insurers on notice of the claim. Barber also proposed that the Defendants consider funding McPeake’s pending tax litigation to attempt to mitigate damages. Barber indicated:
It would appear that the Trust may be reassessed by CCRA with a demand for the payment of taxes which were unanticipated by the Trust. In that event, there may be a claim made against your firm. It may be possible to reduce or eliminate the taxes payable, but this would likely involve litigation in the Tax Court and possibly beyond. Would you please report this…as to whether the E. & O. insurer would participate by funding the tax litigation with a view to mitigating damages.
[9] Both Defendants denied, and still deny, that they were retained with respect to the McPeake Family Trust. The Defendants’ position is that the Family Trust Deed was drafted by a B.C. tax lawyer, Mr. Jones, who was representing McPeake. They point to the fact that this lawyer apparently rendered an account for setting up the Family Trust and to other evidence allegedly in support of Jones’ involvement.
[10] In August 2004, Barber wrote to Sandra Dawe, lawyer for Cadesky, and to Donald Lapowich, lawyer for Seltzer, providing information about their respective client’s involvement and enquiring whether the insurers were interested in litigating or funding the re-assessment.
[11] Andre Rachert, a tax litigation lawyer in British Columbia, was consulted to consider litigating the re-assessment. The Trust is apparently subject to British Columbia laws and it was decided that a rectification application should be brought in B.C.
[12] In September 2004, Sandra Dawe, representatives from Economical Insurance and Rachert’s office (McPeake’s BC tax lawyer), as well as McPeake and Barber, participated in a telephone conference to review the arguments to be made on a potential application to rectify the McPeake Family Trust Deed. During that conference call, Rachert advised that he estimated an application would take 18 months to be heard and a further 6 months for a probable appeal.
[13] Mr. McPeake, through Barber, made it clear to the Defendants from the outset that he wished firstly to attempt to correct or rectify the situation with Revenue Canada before litigating a malpractice action against the Defendants.
[14] A November 19, 2004 note by Barber of a telephone conversation between Barber and McPeake indicates “wait to see if Andre is retained, then negotiate Standstill Agreement”.
[15] By December 2004, Cadesky’s insurer had agreed to retain Rachert to assist in the possible resolution or rectification of the dispute with Revenue Canada.
[16] By letter dated January 14, 2005, Dawe wrote to Rachert, copying Barber, indicating that prior to drafting a standstill agreement there should be a conference call to discuss the parameters.
[17] It is clear from letters exchanged up to April 2005 that Cadesky was prepared to enter into a standstill agreement, as the parties were looking for precedents of such an agreement and exchanging correspondence in that regard. A draft precedent was provided by Barber to Dawe.
[18] By April 2006, Barber was concerned about potential limitation issues and raised these with Rachert, asking how long the rectification might take.
[19] By letter dated April 21, 2006, addressed to Dawe and Barber, Rachert indicated that there would be delays because in such circumstances he preferred, for tactical reasons, not to pressure the Crown. It seems quite clear from this letter that some delays were to be expected in the proposed rectification litigation with the Crown.
[20] As a result of research completed by Barber, a standstill agreement was not entered into as Barber was of the view that ss. 22(1) of the Limitations Act, 2002, as it then was, prevented the parties from entering into a binding agreement to standstill the action.[^1]
[21] Barber and Dawe had a telephone conversation on May 1, 2006. A note by Barber following this call indicates “commence action then defer. Expect Master will OK if on consent. Sandra [Dawe] will: speak to Rachert, speak to Lapowich, get instructions”.
[22] It is clear, from the evidence, that the plan proposed by Barber for the Ontario action involved commencing the action then adjourning it sine die.
[23] This plan is also confirmed in a June 2006 note of Barber following a telephone conversation between Barber and Dawe. Barber notes: “[Sandra Dawe] agrees that I will issue Notice of Action and get Order adjourning sine-die and will write to lawyer.”
[24] By June 2006, Barber had the consent of Dawe (lawyer for Cadesky) and was working on obtaining the consent of Lapowich (lawyer for Seltzer). By letter dated June 7, 2006, Barber wrote to Lapowich, with a copy to Dawe and McPeake, outlining the proposal.
[25] The letter dated June 7, 2006, from Barber communicated the proposed plan (and the fact that Dawe had consented) to Donald Lapowich, counsel for Seltzer. It provides:
CCRA issued its notice of re-assessment in July 2004 and therefore the two year anniversary is approaching.
If Mr. McPeake is unable to resolve his tax liability successfully with CCRA, then he intends to claim compensation from his professional advisors. In his view, Mr. Barry Seltzer was one of those professional advisors.
The preferred course of action on behalf of Mr. McPeake, is to issue a Notice of Action against the professional advisors and then obtain an Order from the Case Management Master effectively adjourning the matter sine die. Ms. Sandra Dawe has advised that her clients will consent to such an Order.
The purpose of this letter is to ask for your consent; the consent would be without prejudice to any and all defences that might be raised on behalf of Mr. Seltzer, in the event the claim proceeds. If the Appeal against the re-assessment is successful, the result that Mr. McPeake does not have an unanticipated tax liability or other costs, then the Notice of Action will be discontinued.
Time is pressing somewhat and therefore, I would appreciate hearing from you as quickly as possible.
[26] Mr. Lapowich indicated that he would seek instructions. Thereafter, by email of June 20, 2006, Lapowich indicated:
I have yours of June 7th, 2006.
I now have instructions to agree with the procedure set out in your letter.
[27] At this point, the evidence indicates that Barber, McPeake and Rachert understood that they had the consent of the Defendants to issue the Notice of Action and then defer the proceeding pending a decision by the CCRA. This is confirmed in an email between them dated June 30, 2006.
[28] From the Defendants’ perspective, agreeing to McPeake’s proposal was based upon the understanding that if the appeal against the reassessment was successful, the negligence action would be discontinued. The agreement clearly provides that if McPeake “does not have an unanticipated tax liability or other costs, then the Notice of Action will be discontinued”. This was essential to their arrangement to defer prosecution of the proposed action.
[29] In their respective affidavit and during their cross-examination, counsel for the Defendants confirmed having generally a similar understanding of the 2006 agreement. Lapowich confirmed that it was his understanding that as a result of this correspondence the action was to be “adjourned to an indefinite point in the future.” Dawe’s testimony similarly confirms that the agreement was to adjourn the Ontario action sine die. Both had a similar understanding to that of Barber. Their understanding accords with the ordinary meaning of sine die, which obviously includes adjourning without assigning a day for a further hearing.
[30] The Notice of Action was issued on July 13, 2006.
[31] Following the issuance of the Notice of Action, Barber’s office took the following steps:
• August 10, 2006: Barber’s assistant prepared and signed a case management motion requesting an extension of time until February 15, 2007 to file the Statement of Claim and Statement of Defence to March 15, 2007 “On notice and unopposed.” Barber testified, in cross-examination, that the change from his instructions that the extension be sine die to what was included in the case management motion form that went to the Master did not come to his attention at the time.
• On that same date, Barber’s assistant prepared, signed and sent a letter to Lapowich and Dawe serving the Notice of Action and the Case Management Motion “requesting a six month extension to file and serve the Statement of Claim.”
• On August 21, 2006, Master Beaudoin, as he then was, ordered the extension of time for service of the Statement of Claim to February 15, 2007 and time to file or deliver a Defence was extended to March 15, 2007.
• On August 31, 2006, Barber wrote to Lapowich and Dawe serving the Master’s Order (actually sending a photocopy of the court’s computer showing the endorsement). Barber’s letter does not speak to the discrepancy between the understanding reached between the parties to adjourn sine die and the Order extending by 6 months.
[32] Barber’s assistant testified that she originally prepared a case management motion form requesting the matter be adjourned sine die but that it was refused at the counter for filing. She further testified that she acted on Barber’s instructions when she prepared the case management motion request for an order extending the time by six months, which is contrary to the recollection of Barber.
[33] Barber’s testimony is that he did not note the discrepancy and was relying on the understanding to defer the Ontario action sine die until the rectification application was resolved.
[34] Upon receipt of the order to extend service, neither Lapowich nor Dawe alerted Barber to the discrepancy between the terms of adjournment actually obtained by Barber’s office and the earlier understanding reached between the parties.
[35] Rather, on August 17, 2006, Lapowich wrote to Barber acknowledging receipt of the August 10, 2006 letter and stated: “you have moved the time for service of the Statement of Claim as previously agreed.”
[36] What had previously been agreed between the parties was not an extension of time for service but rather an indefinite sine die adjournment. “As previously agreed” would refer the reader of Lapowich letter back to the actual understanding reached between the parties and, coincidentally, to Barber’s stated ongoing understanding.
[37] Dawe did not contact Barber with respect to the motion or the order received from Barber’s office.
[38] McPeake was copied with each of the Barber letters, and McPeake could have known that the extension was for only a six month period. Barber as well could have known as the court’s order, as sought by Barber, is on its face quite clear.
[39] Following the August 2006 letter from Barber, no communication was received from Barber with regard to this action until Barber wrote to defence counsel in March 2012, more than five and a half years later.
[40] The Court ordered deadline for service passed on February 15, 2007, seemingly without notice by any of the parties.
[41] The Defendants have indicated that they eventually formed the belief and understanding that the action had been abandoned, since there was no communication or any extension of the deadline, which expired in 2007.
[42] Barber’s assistant testified that following the receipt of the Master’s Order, she had intended to diarize the file to February 1, 2007, leaving time to file a further extension request, but incorrectly diarized the file to February 1, 2008.
[43] Both Dawe and Lapowich testified that they did not diarize their files to receive the Statement of Claim upon receipt of the Master’s Order.
[44] By letter dated April 12, 2007, Rachert wrote to Dawe, Lapowich, Barber and others indicating, amongst others, that he wanted to proceed with the rectification application but required instructions from Dawe, as her client is paying his fees. He described his plan going forward for a rectification application to be filed in the British Columbia Supreme Court with affidavits and indicated that alternatively he would proceed to tax court.
[45] It certainly appears, from this letter, as if the rectification application had not yet been issued (by April 2007) or at least that any proposed rectification steps were still in their infancy. As a result, it appears from this letter as if the initially projected timeline of about 24 months for the rectification efforts, mentioned earlier by Rachert during the telephone conference of September 2004, had not yet been triggered. If the parties expected the rectification efforts to take at least 18 to 24 months, with a clear indication by Rachert that it would likely take longer, then when the parties received this letter, in April 2007, they should have realized or been concerned that rectification efforts might drag on until about April 2009 and probably later.
[46] None of the parties indicated any concern, at least not any concern that might relate to this civil action and possible delays, following receipt of the April 2007 letter from Rachert. Neither Dawe nor Lapowich responded or otherwise commented on the fact that the Statement of Claim had not been delivered pursuant to the Master’s Order. Neither required that it be delivered by a certain date.
[47] Later in 2007, Lapowich transferred the carriage of the file to Mr. Esterbauer, who is the current lawyer of record for Seltzer. Esterbauer indicated that he reviewed the file and prepared a memo to file on April 18, 2007. In this memo he noted that the extension to serve the Statement of Claim had elapsed and that he was not aware of any further orders extending the time for service of the Statement of Claim. At the time the file was transferred, Lapowich did not tell Esterbauer about the arrangement with Barber: “The letters were there to be read” (Q. 112 of the cross-examination of Lapowich). After receipt of Rachert’s letter on April 12, 2007, and upon review of the file, neither Lapowich nor Esterbauer took steps to check the court file to determine the status of the action. Neither counsel contacted Barber to inquire whether the timeline for service had elapsed.
[48] It appears from correspondence to his client, dated April 18, 2007, that Barber mistakenly believed that this action “has been put in suspended animation pending the outcome of Andre’s [McPeake’s] efforts in Tax Court.”
[49] By email dated June 27, 2007, Dawe advised Rachert that the insurer would stop funding the rectification efforts. She advised that this reflected the insurer’s confidence in the merits of its defence to the McPeake civil claim. Dawe testified that the insurer’s decision was not motivated by the fact that the action had been dismissed and was not motivated by the fact that McPeake had not delivered a Statement of Claim in the Ontario action. Indeed, she made no mention in this or in related correspondence of the need to proceed with this action or otherwise to timeline the civil action.
[50] On July 12, 2007, Rachert wrote to counsel for the Defendants, Barber and to McPeake indicating that as a result of Cadesky’s insurer’s decision to stop funding his costs in the rectification proceedings, McPeake had retained him on a contingency basis. Rachert indicated further that if McPeake successfully challenged Revenue Canada’s assessment, Rachert’s fees would form part of the damages claimed in the Ontario civil action (this action). Most relevant to this motion, Rachert indicated, by way of conclusion: “I expect your client’s continued assistance in resolving the dispute with the CRA. Any reduction in tax liabilities is a benefit to all parties in the civil dispute.”
[51] It should have been clear from this letter that the Defendants might be exposed no matter the outcome of the rectification efforts. As well, it should have been clear that the civil dispute was certainly considered ongoing and subject to the outcome of the dispute with the CRA by the Plaintiff and his lawyers.
[52] No pressure was applied by the Defendants on the Plaintiff to move the civil action. Barber spoke to Dawe in August 2007 and, according to the notes of the conversation, this did not come up.
[53] From this last letter it should have been clear that McPeake did not appear to have abandoned his claim in Ontario (this action). Neither of the Defendants’ counsel contacted Barber or Rachert regarding any failure to comply with the Master’s Order. Both Dawe and Lapowich testified that they took no steps at that time to check the court file to determine the status of the action.
[54] The Defendants were then still unaware the action had been dismissed earlier in 2007.
[55] It certainly appears to this court as if all parties were then proceeding as though the initial 2006 understanding was still in place. As indicated in Barber’s June 2006 letter:
The preferred course of action on behalf of Mr. McPeake, is to issue a Notice of Action against the professional advisors and then obtain an Order from the Case Management Master effectively adjourning the matter sine die.
[56] Barber indicated that he kept a watching brief, inquiring about the status of the rectification proceeding.
[57] After February 1, 2008, Barber’s assistant became alerted to the fact that the extension for service had passed. She testified that she did not inform Barber.
[58] Barber’s assistant testified that from her review of the electronic and paper files, she could find no record of when the order dismissing the action as abandoned was provided to Barber’s office. Although court staff is not immune to the occasional error or slip, typically such dismissal orders are faxed by the registrar to the lawyers of record either on or about the date that the registrar makes the order. We have no way of knowing whether this was done but considering the evidence of all lawyers it appears that it probably was not provided. In any event, Barber’s office should have followed up.
[59] Barber’s office file reveals that his assistant prepared a case management motion to reinstate the action and request a further extension on consent from opposing counsel. On April 14, 2008, Barber’s assistant sent a letter, under Barber’s name, requesting opposing counsel’s consent. Barber did not sign this letter and testified that he was not made aware of it. Barber’s assistant did not place a copy of this letter in the correspondence file. It appears, from Barber’s evidence, as if the existence of this letter and of the request to reinstate the action were forgotten on the Plaintiff’s side until Dawe produced a signed copy of the letter in 2012.
[60] It was the evidence of Barber’s assistant that it had “never occurred” to her that the parties would not consent to the extension of time and reinstate the action. She understood the parties had previously agreed not to pursue the Ontario action until a decision in the tax dispute was finalized. She did not inform Barber of these events.
[61] Lapowich and Dawe testified that their respective offices likely received the April 14, 2008 letter, the fax numbers were correct, but neither recalled receiving the letter. Dawe testified that this letter did not come to her attention until December 2011 and Esterbauer confirmed that the 2008 letter was not in his file.
[62] Neither counsel responded to the 2008 request to consent to reinstate the action.
[63] The fact that neither of the Defendants’ counsel responded to the April 14, 2008 letter went unnoticed by Barber’s assistant.
[64] On May 15, 2009, Barber learned that McPeake’s first rectification application had been successful. As a result of this rectification, McPeake expected that the reassessment would be vacated.
[65] In June 2009, Esterbauer’s office contacted an Ottawa agent to check the court file and determine the status of the action. It was at that time that Esterbauer learned that the McPeake action had been administratively dismissed in May 2007.
[66] When asked on cross-examination, Esterbauer could not explain why, in 2009, he did not simply call Barber to inquire as to McPeake’s intentions or the status of the action. Indeed, why did he retain an agent rather than call Barber and why did he not inform Barber of the results of his enquiries?
[67] On November 20, 2009, Rachert prepared a draft letter to be sent to the Defendants’ counsel explaining the results of the rectification, the results of mitigating the damages and the issues going forward. This letter was not sent. It appears as if, on the Plaintiff’s side, they were then considering moving forward with the civil action.
[68] However, by April 16, 2010, Revenue Canada advised McPeake it had decided not to reverse the 2004 reassessment on the grounds that the Family Trust contained other errors. It is the evidence of the Plaintiff that this position of Revenue Canada caused McPeake not to move forward with the Ontario action at that time.
[69] In 2010, McPeake filed a second rectification application in the B.C. Supreme Court to rectify the other alleged errors identified by Revenue Canada. In addition, McPeake filed a Notice of Appeal in the Tax Court.
[70] In 2011, Revenue Canada identified other alleged errors and an amended second rectification application was filed.
[71] In January 2012 the B.C. Supreme Court allowed the amended second rectification application, permitting the other errors in the Family Trust Deed to be corrected.
[72] Rachert forwarded a copy of the reasons to Barber shortly after issuance by email on January 26, 2012.
[73] Despite the apparent success of the second rectification application, Revenue Canada continued to refuse to reverse the reassessment. In July 2012, the Federal Court of Appeal rendered a decision that rebutted Revenue Canada’s published policies about the tax effects of certain contributions to family trusts. Thereafter, Revenue Canada and McPeake entered into settlement negotiations.
[74] A tentative settlement was reached between McPeake and Revenue Canada and counsel advised the Tax Court of this in December 2012. On February 7, 2013, Revenue Canada issued a reassessment for McPeake for the 1999 tax year that reduced McPeake’s tax liability.
[75] On a somewhat unrelated point, the Defendants unsuccessfully moved for summary judgment in the Bahl action. Justice Perell rendered his decision on March 6, 2013, and dismissed the motion. In support of the motion to dismiss the Bahl Action, the Defendant Seltzer filed an affidavit as did representatives of the Defendant Cadesky. In addition, both Bahl and McPeake swore affidavits testifying to their recollection of events and both were cross-examined by the Defendants. In his affidavit, sworn November 29, 2011, which was apparently served on the other parties in December 2011, McPeake indicates, at para. 31, that he also started a civil action in Ontario but, considering the rectification efforts, with “ the agreement of the defendants, we have suspended the Ontario action until we have the results of the Tax Court Appeal, at which time the damages will be clearer.” The same Defendants in the McPeake action and Bahl action are represented by the same lawyers. They would have received the McPeake affidavit.
[76] The Defendants did not correct McPeake or alert Barber upon receipt of the 2011 McPeake affidavit (filed in the Bahl action) that they understood that the McPeake action had been abandoned and dismissed despite proceeding with a cross-examination of McPeake. On December 2, 2011, Dawe emailed an Ottawa lawyer asking him to have the court file in this action checked to confirm the status of the action and was informed that the action had been dismissed (para. 31 of her affidavit).
[77] In October 2011, Barber was made aware of earlier changes to Rule 48 and gave instructions to determine if the McPeake action might be affected. It took some time but by December 12, 2011, Barber testifies that he is for the first time made aware by his assistant (the same assistant throughout) that in December 2011 she learned from the case management office that this action had been dismissed as abandoned in 2007. She did not tell him about her failed efforts in 2008.
[78] Nothing was done at that time to set the dismissal aside. Barber indicates that he gave instructions to an associate on December 12, 2011, to prepare materials for a motion to reinstate the action but nothing was actually done.
[79] Barber’s evidence is that in December 2011, he expected that the Defendants would consent to reinstate the McPeake action. Barber informed his client of the dismissal.
[80] On March 9, 2012, Barber wrote to Dawe and Esterbauer providing a copy of the Reasons for Judgment allowing the second rectification application of the McPeake Family Trust, and proposing a conference call to discuss a timetable to proceed with the Ontario action. Particularly, Barber indicates “because of the passage of time it will be necessary to bring a Case Management Motion to have the action reinstated; please confirm that you will consent…We need to agree to a litigation timetable or have one established by the Case Management Master”.
[81] Defendants’ counsel responded on March 16, 2012 requesting that Barber provide the evidence he would be relying upon to support a motion for reinstatement. Esterbauer indicates, in this letter, that they were quite surprised not having had any communication from Barber for many years they had concluded McPeake had decided not to proceed. He indicates that he expects instructions to vigorously oppose the restoration as he is unaware of any fact or circumstances that would warrant restoring the action at this stage.
[82] No reference is made in that letter of March 16, 2012 to the 2006 understanding.
[83] On May 1, 2012, Barber sent a letter detailing the Plaintiff’s position and by letters dated May 11 and 28, 2012, Defendants’ counsel informed Barber their clients would not be consenting to the motion.
[84] The Plaintiff served and filed this Notice of Motion on July 17, 2012.
[85] The Defendants argue that the deferral of the McPeake action would only extend for as long as a possible discontinuance of the action was a viable option. They argue that as McPeake took the position by July 2007 that he would be required to proceed with this negligence action in any event in order to recover either the tax liability or the substantial contingency fee that he would be required to pay upon a successful conclusion of the litigation with CRA, from that point on discontinuance was no longer a viable option.
[86] The Defendants point to fundamental changes to the 2006 agreement.
[87] First, Barber obtained a different order, one that extended time by six months. The order sought was apparently refused by the court and Barber’s office obtained a six month extension order instead of a sine die order.
[88] They point out that Barber’s assistant believes that she would have shown Barber the draft motions and that she recalls showing Barber the second draft motion. Barber denies having any knowledge at the time that the court would not and did not accept a sine-die extension. The Defendants point out that when cross-examined Barber only indicated that he did not recall his assistant telling him that the court would not accept a sine die extension. What seems more probable to this court is that his assistant did have such conversations, as she recalls, and that Barber does not recall. In any event, a different order was obtained by Barber and correspondence from Barber’s office sent this different order to the Defendants, only extending the time for service to February 15, 2007.
[89] Further, the Defendants argue that another fundamental change occurred when the insurer for Cadesky indicated that it would no longer fund Rachert’s efforts at rectification. The withdrawal of funding meant that McPeake would have damages regardless of the outcome, as indicated above (in the form of either increased taxes or contingency fee).
[90] As well, the Defendants point out that Rachert and Barber thereafter stopped communications with defence counsel regarding updating them in the steps taken in the rectification proceedings for over four and a half years and that the Plaintiff intentionally let the action languish.
[91] Esterbauer noted in 2007 that the 2007 deadline had passed with no further extension. He made inquiries in 2009 as indicated above. Even though Dawe did not have the same information, her evidence is that she formed the belief that McPeake was not proceeding with his action and that she was surprised to receive McPeake’s December 2011 affidavit filed in the Bahl motion. Indeed, the Defendants should then have been alerted that McPeake did not believe that he had abandoned this action.
[92] The Defendants as well deny that the Plaintiff’s delay resulted from inadvertence. They argue that the Plaintiff and his lawyer were aware of the order obtained and that Barber’s assistant tried unsuccessfully to extend the time in 2008.
[93] They also argue that the Plaintiff delayed in the delivery of the motion materials. Seltzer points to the delay between December 12, 2011, when Barber indicates that he found out, and Barber’s March 9, 2012 letter to opposing counsel seeking consent to reinstate the action. Seltzer indicated when this motion was argued that he has no issue with what happened after March 9. Cadesky takes issue with the added delay between May 11 and July 17 or 18, 2012, when the notice of motion was served and, as well, that no proposed draft statement of claim has been provided to date. Seltzer takes no issue that if this motion is successful, it will not be argued again and part of the relief will incidentally include leave to file a statement of claim.
[94] Both Defendants point to defences on the merits and both point to prejudice in affidavits filed by their lawyers. The Defendants did not file affidavits.
[95] The alleged prejudice relates to the long delays. The Defendants have not filed any specific evidence of prejudice but argue that the recollections of key individuals/witnesses must be eroded by the passage of time, that they are prejudiced by the lack of particulars via a statement of claim, by the lack of discovery, and by possible prejudice to their ability to seek indemnity from third parties. In addition they submit that they are prejudiced by the fact that the limitation period has expired years ago.
Issues
[96] Should the Court exercise its discretion to set aside the registrar’s dismissal?
Applicable law and analysis
[97] Rule 37.14(2) of the Rules of Civil Procedure provides that a party who is affected by an order of a registrar may move to set aside the order. On such motion, the court may set aside or vary the order on “such terms as are just”.[^2]
[98] Rule 1.04(1) provides that the rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.[^3]
[99] Motions to set aside administrative dismissals typically involve a careful balance and weighing of the two fundamental principles namely, that civil actions should be decided on their merits, while at the same time the procedural rules are to be respected, as the aim is to resolve disputes in a timely and efficient manner.[^4]
[100] An order of the court, in this case, the order of the registrar dismissing the action for delay in May 2007, is to be respected. The Plaintiff carries the burden of establishing that the circumstances warrant the setting aside of such order.
[101] The Ontario Court of Appeal has dealt with a significant number of appeals from decisions on motions to set aside administrative dismissals.
[102] The starting point for the court’s deliberation is the four Reid factors outlined by the Court of Appeal in Marché D'Alimentation Denis Thériault Lteé v. Giant Tiger Stores Ltd.[^5] The objective however is to determine what is the just order in the circumstances of the case, having regard not only to these factors but as well to any other relevant circumstances of the particular case. It is not required for the moving party to meet all factors and a contextual approach is to be preferred.
[103] The Court of Appeal in Giant Tiger emphasized the important principle of promoting the timely resolution of disputes. Writing for the majority in Giant Tiger, Sharpe, J.A., stated:
These rules and cases rest upon an important principle: there is a strong public interest in promoting the timely resolution of disputes. “The notion that justice delayed is justice denied reaches back to the mists of time ….For centuries, those working with our legal system have recognized that unnecessary delay strikes against its core values and have done everything within their powers to combat it”: Blencoe v. British Columbia (Human Rights Commission), 2000 SCC 44, [2000] 2 S.C.R. 307, [2000] S.C.J. No. 43, at para. 146. The interest of litigants involved in the civil justice system in timely justice is obvious. Litigants are entitled to have their disputes resolved quickly so that they can get on with their lives. Delay multiples costs and breeds frustration and unfairness.[^6]
[104] In considering the relevant factors and circumstances, the court is mindful of the policy considerations and concerns about timely justice, set forth as well in two recent Ontario Court of Appeal decisions. In Faris v. Eftimovski, the Court of Appeal dealt with an appeal from a dismissal of an action at a status hearing and in Nissar v. TTC, the court dealt with a motion by the plaintiff to restore an action that had been struck from the trial list.[^7]
[105] The administrative dismissal of an action by a registrar is one of the mechanisms in Rule 48 aimed at controlling the pace of litigation.
[106] However, the courts should situate an assessment of a particular delay within the overarching goal of the justice system to resolve disputes fairly, on the merits, and in a timely and efficient manner.
[107] In exercising its discretion, the courts will consider the following:
a. An order dismissing an action for delay made by the Registrar is an order of the court. A party having notice of the order must treat it as valid and move promptly to set it aside. Technical deficiencies do not render the order a nullity.
b. The objective of the court reviewing the Registrar’s order is not to punish a party for technical non compliance with the rules but to determine whether or not it is just to set aside the dismissal order under all of the circumstances.
c. The court should consider the four Reid factors which may be summarized as:
i. explanation of the litigation delay which led to the dismissal notice and order in the first place;
ii. inadvertence in missing the deadline set out in the notice;
iii. promptly moving to set aside the order once it comes to the attention of the moving party; and
iv. prejudice or lack of prejudice to the defendant.
d. All of these factors will be important but prejudice will be the key consideration. Prejudice to the defendant may be presumed particularly if time has passed since the order was granted and a limitation period has passed. In the latter case the defendant need not prove prejudice and the onus is on the plaintiff to rebut the presumption.
e. Prejudice to the defendant is not the prejudice inherent in facing the action in the first place but prejudice in reviving the action after it has been dismissed. This could be prejudice caused by delay in the conduct of the action that would itself support dismissal under Rule 24 or it could be prejudice that has arisen post dismissal because of reliance on the finality of the order.
f. In conducting the analysis as to whether or not it is just to relieve against the consequences of the registrar’s order, the court should be mindful that the party who commences litigation bears the primary responsibility under our rules for the progress of the action. Thus the burden is on the plaintiff to explain delay.
g. In weighing the relevant factors, the court should not engage in speculation concerning rights of action against a lawyer or former lawyer and should focus on the rights of the parties rather than on the conduct of counsel.[^8]
[108] As indicated at the outset of my reasons, this case is factually different from other reported decisions on this topic and, in fact, rather unique and perplexing primarily as a result of the 2006 agreement/understanding. The court has to consider what should be the impact of the agreement on this motion. A question in my mind throughout this motion and which I asked of counsel for the Defendants during their respective arguments is whether the Plaintiff is entitled, under the 2006 agreement, to one extension of time? Their response was no for reasons that I have summarized above, including the Plaintiff’s delays in seeking an extension since this action was dismissed in 2007.
[109] In June 2006, the parties reached an agreement that McPeake would issue a Notice of Action and then adjourn the action sine die. As indicated by Barber in his letter:
The preferred course of action on behalf of Mr. McPeake, is to issue a Notice of Action against the professional advisors and then obtain an Order from the Case Management Master effectively adjourning the matter sine die. Ms. Sandra Dawe has advised that her clients will consent to such an Order.
The purpose of this letter is to ask for your consent; the consent would be without prejudice to any and all defences that might be raised on behalf of Mr. Seltzer, in the event the claim proceeds. If the Appeal against the re-assessment is successful, the result that Mr. McPeake does not have an unanticipated tax liability or other costs, then the Notice of Action will be discontinued.
[110] A different order was obtained by Barber, as the Court would not grant the order he sought. Barber’s evidence is that he was not aware that a different order was obtained. To the extent that his evidence on this point conflicts with that of his assistant, I find, for purposes of this motion, more probable that Barber was at the time made aware of the change but simply forgot as for him it did not really matter: under the agreement he understood that the action “has been put in suspended animation pending the outcome of Andre’s [McPeake’s] efforts in Tax Court.”
[111] Barber and his office should have extended the ordered timeline in a timely manner. They did not. Barber and his client mistakenly understood that the action was suspended as described above. Barber’s assistant incorrectly diarized the matter. Neither Defendants’ counsel responded to her 2008 request seeking consent to reinstate the action and this went unnoticed by Barber’s assistant.
[112] The parties on the rectification efforts initially expected delays of at least 18 - 24 months. Additional delays were as well expected as counsel hired to pursue the rectification efforts made it quite clear to all that his strategy was not to antagonize the Crown and that additional delays could be expected.
[113] The parties did not negotiate or discuss an end-date for this adjournment sine die. Subsequent to the 2006 understanding, there was no discussion between Barber, Dawe and Lapowich/Esterbauer to alter the understanding. The Defendants now assert that they considered the Master’s Order to be a unilateral amendment by the Plaintiff to the 2006 agreement and that they were satisfied with the change. Yet, neither of the Defendants’ counsel diarized their calendars to follow-up on this matter and neither noted that the statement of claim had not been served by February 15, 2007. Neither followed up with Barber on this point.
[114] I find that in 2007, despite the dismissal, all parties were then proceeding as though the 2006 understanding to adjourn sine die was still in place.
[115] McPeake’s evidence is that he intended to proceed with the suspended Ontario action once the dispute with Revenue Canada was completed. McPeake’s actions, as outlined above reflect his stated intent.
[116] In April 2007, Rachert confirmed to the Defendants that McPeake’s tax dispute included: a tax court dispute, a rectification application and a civil proceeding. It appears as if neither the Tax Court proceeding nor the rectification application had been started by the time Dawe’s client decided to stop funding Rachert in June 2007. On July 12, 2007, Rachert wrote again to the Defendants stating that McPeake had retained him on a contingency fee basis and that his fees would form part of the damages claimed in the Ontario action.
[117] It certainly appears as if McPeake’s decision to focus on the tax litigation and not move the Ontario action forward was based on the parties’ 2006 understanding to hold the Ontario action in abeyance (adjourned sine die).
[118] The six month extension to serve the claim passed without notice by any of the parties.
[119] I find that the evidence, summarized above, provides a reasonable explanation for the litigation delay and establishes, on a balance of probabilities, that the missed deadline was a result of inadvertence.
[120] Barber did not bring a motion in 2007 to set aside the dismissal because he was unaware that the action had been dismissed. Similarly, Barber did not move to reinstate the action in 2008 because he was unaware of the dismissal and unaware of the steps his assistant had taken to seek the opposing parties’ consent. There is no conflict between Barber and his assistant on this last point. Barber and the Plaintiff incorrectly assumed, despite the earlier order, that the extension was on an indefinite sine die basis.
[121] By early December 2011, Barber did learn that the action had been dismissed. Barber delegated the preparation of motion materials to an associate but for reasons unknown, those materials were not prepared. In March 2012, Barber wrote to Defendants’ counsel to seek their consent to reinstate. Barber wrote a reply to opposing counsel in May 2012, following Defendants’ counsel request for a fulsome explanation. In May 2012, Barber learned that the opposing parties would not consent to set aside the order. The Plaintiff commenced this motion to reinstate the action on July 17, 2012.
[122] Barber did not move promptly to set aside the order once it came to his attention. This failure to move promptly is explained in part by Barber’s evidence that he did not anticipate opposition considering his understanding of the 2006 agreement. Nonetheless, for purposes of this motion I find that he should have moved more expeditiously and that he failed to move promptly.
[123] As confirmed by the Court of Appeal in Wellwood v. Ontario, the expiry of a limitation period can give rise to presumptive prejudice, the strength of which increases with the passage of time. Where such presumption arises, the plaintiff bears the burden of rebutting the presumption. Where the presumption is displaced, the onus shifts to the defendants to establish actual prejudice.[^9]
[124] The Plaintiff has established that the Defendants were put on notice of the claims against them in May 2004. The Defendants denied liability. When the Notice of Action was issued, the 2006 understanding to adjourn the matter sine die was in place.
[125] Given the early notice and the 2006 understanding, the Defendants could have taken steps to preserve evidence and could have interviewed key witnesses. On these last points, steps were taken by the Defendants with regards to the ongoing Bahl action.
[126] The 2006 understanding impacts the analysis of prejudice.
[127] Initially and prior to the order being obtained, the understanding between the parties is quite clear. If the court had made an order adjourning the matter sine die, this action would not have been dismissed for delay in May 2007 as the applicable rules (Rule 77.08(1) as it then read, now Rule 48.15) would not have been triggered. If the agreed upon order to adjourn sine die had been obtained, notice by the Defendants would have been required to vary this understanding. For example, under this scenario, if any of the Defendants ever became concerned with any possible prejudice arising from the adjournment sine die, then any such Defendant would have had to put the Plaintiff on notice that the Plaintiff was henceforth to proceed with the action. If the Plaintiff refused, a motion could have been brought to seek to vary the order. In any event, it seems clear that notice by the Defendants would have been required. In the absence of notice, assuming such an understanding, the Defendants would be in a weak position to claim prejudice resulting from the accruing delays.
[128] On the other hand, if there had been no prior agreement to adjourn sine die and only an agreement for a six month extension had been made then no such notice by the Defendants would be required. Under such an agreement, the Defendants would be in a strong position when making arguments regarding prejudice.
[129] In fact, what we have in this action is both an earlier understanding to adjourn sine die and then a different order being obtained for an extension to February 15, 2007 to serve and file the statement of claim. The order obtained required that timely extensions be obtained on an ongoing basis. Under the 2006 understanding, as modified by the order actually obtained, these extensions would have been sought on consent. If at any point one of the Defendants wished to modify the understanding, then notice would be required.
[130] Let us assume, for example, that the Plaintiff had regularly and in a timely manner obtained extensions on consent of the timeline. How could a Defendant, under the 2006 understanding, as varied by the order actually obtained, refuse to consent to an extension without at least some notice to the Plaintiff that this or a prior extension was to be the last extension? From a contractual perspective, some form of notice was required. That is my interpretation of the resulting agreement. I would have arrived at a different conclusion if the only agreement had been the order actually obtained. However, the order actually obtained is clearly subject to the earlier agreement. Reading the two together results in my interpretation as outlined above. The order is simply the mechanism to implement the understanding.
[131] Arguably, after funding for the rectification efforts was terminated in 2007 by the Defendant Cadesky, the Plaintiff could have put the Defendants on notice of his intention to pursue the civil action as it then became apparent that there would be some exposure in costs if successful or in unexpected taxes if unsuccessful (or a combination of both as now appears to be the case). For reasons summarized above, the Plaintiff did not do so preferring instead to firstly finalize rectification efforts. Similarly, on the Defendants’ theory that this subsequent refusal to fund rectification efforts by the Defendant Cadesky resulted in a fundamental change, any of the Defendants could then have requested that the Plaintiff expeditiously proceed with the civil action. As indicated above, at no time after the 2006 understanding did a Defendant ever request or apply any pressure on the Plaintiff to proceed with the civil action.
[132] The above has to be an important factor to this analysis, and in particular to any analysis of prejudice now being alleged by the Defendants.
[133] I find, from the above, that the Plaintiff has rebutted the presumption of prejudice.
[134] I disagree with the Defendants’ argument that it would be unfair and prejudicial to the Defendants to expose them to a claim at this late date. In July 2007, when they received the letter from Rachert advising that McPeake was proceeding with his challenge to the 2004 reassessment, it was only reasonable for the Defendants to understand that McPeake had not abandoned the action. Similarly, in late 2011 when they received McPeake’s affidavit filed in the Bahl action.
[135] The Defendants failure to contact Barber upon receiving the above are illustrations of the wait and see approach the Defendants adopted in this litigation.
[136] In addition, neither the Defendant Cadesky nor the Defendant Seltzer filed affidavits in response to this motion. The affidavits are from the Defendants’ lawyers, Lapowich and Dawe. The weight to be attributed to evidence on a contentious issue should be proportionate to the relative probity and reliability of the source of the information. In this case, the parties, not the Defendants’ lawyers, would have been a more appropriate source of evidence concerning actual prejudice particularly when factoring into the analysis the 2006 understanding as modified by the order.
[137] Moreover, there is no evidence that either Defendant has been unable to preserve relevant records. There is no evidence that either Defendant has been precluded from contacting relevant witnesses. There is no evidence that either Defendant relied on their counsels’ assumptions that the within action was abandoned. In fact, there is no evidence that either Defendant was aware of their respective counsels’ assumptions. While Lapowich has provided his opinion as to whether certain witnesses will be willing to testify, no attempts have been made to contact those witnesses. Dawe’s affidavit contains no mention of prejudice to Cadesky. The Defendants have been on notice of this action since 2004 and, subsequently, entered into the 2006 understanding. Considering the 2006 understanding as modified by the order, if they ever became concerned about time and prejudice they should have put the Plaintiff on notice to proceed with the action.
[138] I find that the above is a sufficient answer on the issue of prejudice.
[139] The issue of finality is similarly answered by the 2006 understanding as modified by the order. As a result, the facts in this case are quite different from those in Giant Tiger.
[140] The Defendants have claimed that the loss of opportunity to sue George Jones for contribution and indemnity amounts to prejudice. This is answered by the 2006 understanding, as outlined in the above analysis. Moreover, if the Plaintiff has chosen not to sue one of his advisors and that advisor is found to be responsible for the omission, it is the Plaintiff’s risk not the Defendants’ prejudice. McLachlin J.A. (as she then was) explained the law of third party claims as follows:
Generally speaking, all acts falling within the scope of an agency between the proposed third party and the plaintiff fall into the category of acts for which the plaintiff is responsible and hence are not the proper subject to third party claims.[^10]
[141] The merits of the underlying action are not in the circumstances of this motion an appropriate consideration or one that favours the Defendants because the evidence on this issue is not “clear and unchallenged.”[^11] By way of example on this point, the Defendants were not successful in a recent motion for summary judgment brought in the Bahl action. I agree that the merits of the underlying action should rarely be a relevant consideration on such a motion barring “clear and unchallenged” evidence. An assessment of the merits should otherwise be left to a motion for summary judgment or to trial.
[142] But for the 2006 agreement as modified by the order, I have no doubt that I would have dismissed this motion on a rather straightforward analysis. However, an agreement was entered into. That agreement impacts the relevant factors.
Disposition
[143] Considering the circumstances of this matter, the arguments, the evidence filed and the factors summarized above, I have come to the conclusion that adopting a contextual approach, balancing all factors (not unlike the situation in Wellwood, see paras. 121 – 124 of that decision), that the ultimate balancing favours the Plaintiff such that what is just is to allow this action to proceed. Consequently, the registrar’s dismissal order of May 7, 2007, is hereby set aside. Time to file a statement of claim is extended 30 days from today and time to file a notice of intent to defend or a statement of defence is extended 60 days from today.
[144] If the parties cannot agree on costs for this motion then brief written submissions (not to exceed two pages) with a costs outline shall be sent by email to my registrar on the following schedule: within 20 days by the Plaintiff and within 30 days by the Defendants.
Master Pierre E. Roger
Date: October 22, 2013
[^1]: Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. [^2]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194. [^3]: Ibid. at s. 1.04(1). [^4]: 1196158 Ontario Inc. v. 6274013 Canada Limited, 2012 ONCA 544, 112 O.R. (3d) 67 at paras. 17-18. [^5]: Reid v. Dow Corning Corp., [2001] O.J. No. 2365, 11 C.P.C. (5th) 80, reversed on other grounds [2002] O.J. No. 3414, 48 C.P.C. (5th) 93 (Div. Ct.) cited by the Court of Appeal in Marché D'Alimentation Denis Thériault Lteé v. Giant Tiger Stores Ltd., 2007 ONCA 695, 87 O.R. (3d) 660 at para. 12. [^6]: Giant Tiger, supra note 5 at para. 25. [^7]: Faris v. Eftimovski, 2013 ONCA 360, 206 O.A.C. 264 and Nissar v. Toronto Transit Commission, 2013 ONCA 361, 115 O.R. (3d) 713. [^8]: K. Laboratories v. Highland Export Inc., 2010 ONSC 4032, [2010] O.J. No. 3116 at para. 4 [Master]. [^9]: Wellwood v. Ontario (Provincial Police), et al, 2010 ONCA 386, 102 O.R. (3d) 555 para. 60. [^10]: Adams v. Thompson, Berwick, Pratt & Partners (1987), 1987 2590 (BC CA), 39 D.L.R. (4th) 314, 15 B.C.L.R. (2d) 51 at 319 (BCCA). [McLachlin J.A. as she then was] cited with approval in Macchi s.p.a. v. New Solution Extrusion Inc. (2007), 2007 48653 (ON SC), 162 A.C.W.S. (3d) 225, [2007] O.J. No. 4392 at para. 18. [^11]: Tribar Industries Inc. v. KPMG LLP, 2011 ONSC 1699, 199 A.C.W.S. (3d) 587 at paras. 34-39; Quick Refunds v. Dundas, 2012 ONSC 5996, 222 A.C.W.S. (3d) 240 at para. 33.