ONTARIO

SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

COURT FILE NO.: CV-11-9177-00CL
DATE: 20131021

IN THE MATTER OF XELA ENTERPRISES LTD.,

AND IN THE MATTER OF 696096 ALBERTA LTD.

AND IN THE MATTER OF THE ONTARIO BUSINESS

CORPORATIONS ACT

BETWEEN:

XELA ENTERPRISES LTD., GABINVEST, S.A., LISA, S.A. JUAN GUILLERMO GUTIÉRREZ, JUAN ARTURO GUTIÉRREZand 696096 ALBERTA LTD.

Plaintiffs

AND:

MARGARITA CASTILLO, ROBERTO RICARDO CASTILLO, JUAN LUIS BOSCH GUTIÉRREZ, DIONISIO GUTIÉRREZ MAYORGA, JUAN JOSE GUTIÉRREZ MAYORGA, FELIPE ANTONIO BOSCH GUTIÉRREZ, ROBERTO BARILLAS CASTILLO, ISABEL GUTIÉRREZ DE BOSCH, LA BRAÑA, S.A., MULTI-INVERSIONES, S.A., VILLAMOREY, S.A., AND AVICOLA VILLALOBOS, S.A.

Defendants

BEFORE: Newbould J.

COUNSEL:
Jeffrey S. Leon, for Margarita Castillo

Tom Friedland and Tamara Jacobson, for the Roberto Ricardo Castillo

Joseph Groia and Martin Mendelzon, for the plaintiffs

HEARD: October 16, 2013

ENDORSEMENT

[1] The defendants Margarita Castillo (“Margarita”) and her husband Roberto Ricardo Castillo, (together the "Castillos"), move for an order extending the time for delivery of their statements of defence in this action. It is opposed by the plaintiffs.

[2] Margarita’s father Arturo and her brother Juan are Gutiérrez plaintiffs. The Gutiérrez family operates a significant enterprise of Central American businesses, known as the Avicola Group, which is primarily focused on agricultural and poultry production. For over 30 years, the interests in these family businesses have been divided into thirds, with Arturo's family controlling one-third and the defendants Dionisio Gutiérrez Mayorga, Juan Jose Gutiérrez Mayorga, Juan Luis Bosch Gutiérrez and Felipe Antonio Bosch Gutiérrez (collectively known as the "Cousins") controlling the balance. Arturo and his children (including Margarita and her husband) relocated from Guatemala to Toronto in the early 1980's.

[3] In 1998, as the result of alleged accounting irregularities in the Avicola Group, Xela started multiple legal proceedings against the Cousins in various jurisdictions in Central America, the United States and the Caribbean. This multi-jurisdictional legal battle, which is based in alleged fraud, conversion and breach of trust, has continued for nearly 15 years.

[4] On January 18, 2011, three months before this action, Margarita started an application in which she seeks relief from oppression against her father and brother and Xela. She alleges that Xela, Arturo and Juan unfairly prejudiced her interests as a beneficial shareholder of Xela and that Juan has run Xela for his own benefit. She also alleges that she was oppressed as a shareholder of a separate family company, Tropic International Limited, most notably through the refusal to disclose key financial information.

[5] On April 12, 2011, the plaintiffs commenced this action. Among other things, the action alleges that the defendants have conspired to confiscate Xela's shares and dividends in the Avicola Group. It also alleges that the Castillos conspired with the remaining defendants (“Foreign Defendants”) to unlawfully make confidential Xela documents public for the purpose of effecting the confiscation.

[6] Until this year, little was done by the plaintiffs to advance the action. Rather the plaintiffs pursued the defence of the application and numerous affidavits were exchanged and cross-examinations took place. The plaintiffs at that time were represented by different counsel.

[7] On February 28, 2013 a fresh as amended statement of claim was delivered by Gowlings, new counsel acting for the plaintiffs, and on March 11, 2013 Gowlings took the position that the Castillos should deliver their statements of defence.

[8] The Foreign Defendants in the action take the position that they were not properly served, and also that if they were, Ontario lacks jurisdiction over them. A motion to determine the service issue is scheduled to be heard on October 29, 2013. The Castillos’ position from the outset of the action has been that until it is known whether the Foreign Defendants are proper defendants, they should not have to file a statement of defence or take steps before filing to attack the statement of claim.

[9] On April 18, 2013, Gowlings advised that the plaintiffs would be pursuing a motion to convert Margarita’s application into an action and consolidate it with the action started by them. This did not proceed because of the necessity for cross-examinations on affidavits in the application. On July 31, 2013 at a case conference, new counsel for the plaintiffs, Mr. Groia, advised that the plaintiffs would be pursuing the consolidation motion, but two weeks later on August 16, 2013 advised that the motion to consolidate would be withdrawn. While it has still not been formally withdrawn, Mr. Groia stated in argument that it would be withdrawn.

Analysis

[10] Rule 18.01 of the Rules provides that a defendant in Ontario must deliver a statement of defence within twenty days after service of a statement of claim. However, rule 3.02 confers discretion on a court to extend or abridge any time prescribed by the rules on such terms as are just. In addition, rule 1.04 gives the court discretion to interpret the rules in a manner that secures the just, most expeditious and the least expensive determination of any proceeding.

[11] Both Mr. Leon and Mr. Friedland stated that they intend to bring a motion to strike portions of the statement of claim on the grounds that no proper cause of action has been pleaded. Mr. Leon also stated that counsel for the Foreign Defendants, Mr. Paliare and Ms. Kay, intend if their clients are held to be subject to the jurisdiction of an Ontario court to also bring similar motions to strike portions of the statement of claim as disclosing no proper cause of action against their clients.

[12] Mr. Groia contends that the Castillos should be required to now bring any motion regarding the pleadings and deliver their statements of defence. He contends that if the Foreign Defendants are held to be subject to the jurisdiction of our court, they can after that bring their motions on the pleadings.

[13] The difficulty with this contention is that the causes of action pleaded against the Castillos are not in the main discrete from the claims pleaded against the Foreign Defendants. The core claim is a claim of conspiracy against all defendants for $400 million and a claim for a declaration that all defendants are constructive trustees of $4.35 million belonging to Xela said to have been improperly received by Margarita.

[14] It would not be an efficient use of court time to have a pleading motion over the validity of the statement of claim being heard at the behest of the Castillos and then, some time later, hearing it again at the behest of the Foreign Defendants. There is also a risk that it would not be fair to the Foreign Defendants who might be faced with a decision on the motion by the Castillos unfavourable to the Castillos, a decision which the Foreign Defendants would have had no ability to influence, but which would make practical difficulty for them. It also raises the spectre of inconsistent decisions on the motion by the Castillos to strike portions of the statement of claim and the later motions by the Foreign Defendants for the same purpose. All of this should be avoided if possible.

[15] On the other hand, what is to be gained by forcing the Castillos to now take steps to attack the pleadings and then file their statements of defence while it is not known if the Foreign Defendants will remain as defendants? In my view, little or nothing.

[16] The parties cannot agree to a Discovery Plan or exchange documentary productions until the parties to the action are finally determined. Further, the rules permit only one examination for discovery of an adverse party, and obviously all of the parties to the action who are opposite in interest are entitled to participate. Even if the Castillos had filed their defences, nothing further could happen in the claim against them until the jurisdiction issues regarding the Foreign Defendants had been determined and until further motions by those Foreign Defendants to attack the pleadings had been concluded.

[17] In these circumstances, I see no reason to require the Castillos to take steps to attack the statement of claim or deliver their statements of defence until the service and jurisdiction issues regarding the Foreign Defendants have been determined, and no prejudice to the plaintiffs if the Castillos are not required to take those steps now. Also, one cannot help but note that the plaintiffs did nothing with their claim for about two years until earlier this year.

[18] The plaintiffs rely heavily on a decision of Chief Justice Joyal of the Manitoba Court of Queen’s Bench in Manitoba v Rothmans, [2013] MJ No 210 (QB) in which it was ordered that attorning defendants had to file their defences prior to decisions on jurisdictional motions brought by other defendants who had not attorned to the jurisdiction of the Manitoba Court.

[19] However, the exercise of discretion in deciding whether to make such a ruling must be made on the facts and dynamics of the particular case before the judge. The dynamics of the Manitoba case were different, and included an action under the authority of legislation against tobacco manufacturers, an action more arguably in the public interest than this action. Also, Chief Justice Joyal acknowledged that similar actions had been brought in other provinces against the tobacco manufacturers and that different approaches had been taken to comparable motions in those provinces, such as Ontario where attorning defendants were not required to file defences until the jurisdictional issues regarding the non-attorning defendants had been dealt with.

Conclusion

[20] The time to take any proceedings against the statement of claim and to file any statement of defence for the Castillos is extended until the final determination of the service motions brought by the Foreign Defendants, and if it is held that service is effective against any of the Foreign Defendants, until the final determination of the jurisdiction motions brought by any of the Foreign Defendants who are held to have been properly served.

[21] Each of the Castillos is entitled to their costs. If not agreed, brief cost submissions along with proper cost outlines may be delivered within 10 days, or longer if agreed, and the plaintiffs shall have 10 further days to deliver brief reply cost submissions.

Newbould J.

Date: October 21, 2013