Ronald A. Chisholm Limited v. M-Power Trading Pte. Ltd. 2015 ONSC 253

COURT FILE NO.: 3459/14T

DATE: 2015/01/15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ronald A. Chisholm Limited (Plaintiff)

• and -

M-Power Trading Pte. Ltd., M-Power Food Industries Pte. Ltd. and Sam Paul Dang (Defendants)

BEFORE: Justice H. A. Rady

COUNSEL: Ian Wallace, for the plaintiff

Ray Thapar, for the defendants

HEARD: January 7, 2015

ENDORSEMENT

Introduction

[1] The defendants brought this motion, originally returnable in August 2014, seeking a declaration that the action was deemed dismissed pursuant to Rule 48.15(6) of the Rules of Civil Procedure. They also sought an order setting aside two ex parte orders because they were obtained when the underlying action had been dismissed and for an alleged failure to make full and frank disclosure. Finally, they asked for an order dismissing the claim against Sam Dang on the basis that no reasonable cause of action is pleaded against him and on the basis of admissions said to have been made at a cross-examination of a representative of the plaintiff.

[2] In response, the plaintiff brought a cross motion for an order setting aside the deemed dismissal.

[3] During the time that the action was dismissed, the plaintiff had moved for certain relief including an order extending the time for service of the statement of claim and an order for a change of venue. The defendants submit that the motion was a nullity because of the deemed dismissal.

[4] On the issue of non-disclosure, the defendants suggest that the plaintiff failed to disclose to the motions judge that:

(i) the action was deemed dismissed pursuant to the operation of Rule 48.15(6);

(ii) the contracts in question were between the plaintiff and M-Power Trading Pte. Ltd. only;

(iii) Sam Dang was not a party to any of the contracts;

(iv) the plaintiff commenced the action after settlement discussions over a course of one year (June 2008 to July 2009) had failed;

(v) the plaintiff did not tell the defendants that a claim had been issued in Ontario against them;

(vi) the plaintiff had entered into a settlement pursuant to which M-Power Food Industries Ltd. would purchase produce from the plaintiff at premium prices and the excess margins would be applied to the outstanding indebtedness owed by M-Power Trading;

(vii) the agreement continued from April 2010 to 2013 until it was cancelled by the plaintiff;

(viii) the plaintiff had commenced a proceeding in the United States in which it sought substantially less damages.

[5] The defendants also submit that the plaintiff did not explain its delay in bringing the motion and that it misrepresented to the motions judge that the defendants were aware of the claim and its implications.

[6] The plaintiff has filed an affidavit from a Gregg Badger who is the chief operating officer, secretary and director of the plaintiff.

[7] The defendants filed affidavits from a law clerk employed by the defendants’ solicitors. Her evidence is uncontentious, simply setting out a chronology of events. The defendants rely on Rules 21, 48.15(6) and 51.06 of the Rules of Civil Procedure.

Facts

[8] The plaintiff commenced an action alleging that the defendants breached a series of contracts made between the parties in 2008 pursuant to which the defendants agreed to purchase various powdered dairy products from the plaintiff. The plaintiff operates from its head office in Toronto. The defendants are located in Singapore. The plaintiff shipped the goods to Singapore in May and June of 2008. The plaintiff alleges that the defendants failed to accept delivery of the goods and failed to pay the purchase price. As a result, the plaintiff says that the defendants are indebted to it for $1,686,000 (in round terms).

[9] On August 11, 2009, the plaintiff commenced this an action. They were represented at the time by a law firm located in Peterborough, Ontario. The statement of claim was not served within the six month period required by the Rules of Civil Procedure.

[10] In the meantime, in November 2009, a representative of the plaintiff met with the defendants in Singapore to discuss the issues between them. As a result of those discussions, the plaintiff became concerned about whether the defendants had the financial capacity to pay a judgment in the event the plaintiff was successful in obtaining one.

[11] Consequently, the plaintiff was motivated to negotiate an arrangement pursuant to which the parties would continue in business together in a manner that would allow the plaintiff to recover its losses. Accordingly, the plaintiff chose not to serve the statement of claim at that time and it instructed its counsel to hold the matter in abeyance in order to pursue settlement options.

[12] Discussions between the parties continued and in March 2010 and again in December 2010, the plaintiff attended in Singapore to discuss the details of a joint venture. The statement of claim was not served during this period of time in order to avoid jeopardizing resolution.

[13] In early 2011, negotiations came to an end. Nevertheless, the parties agreed to continue to do business together while the defendants paid premium prices supplied by the plaintiff which would be applied to the outstanding debt.

[14] In early 2012, a new settlement proposal was considered. It provided that the plaintiff would receive shares in the defendant companies as compensation for its losses. A provisional settlement agreement was executed on June 12, 2012. Unfortunately, the negotiations with respect to the investment proposal broke down by the end of 2013.

[15] Mr. Badger has deposed that although the plaintiff did not serve the statement of claim, it was clear between the parties that if settlement negotiations did not come to fruition, the matter would proceed to court. Mr. Badger also testified at his cross-examination that at all material times, the defendants were fully aware that the plaintiff was prepared to take the defendants to court whether in Ontario or in Singapore. There is some support for this contention in the plaintiff’s motion in the record. Attached to Mr. Badger’s affidavit as Exhibit M is a letter dated April 16, 2012 from the plaintiff’s Singapore counsel addressed to the two corporate defendants. The “re” line reads “Claim by Ronald A. Chisholm Limited against you for loss and damage arising from your breach of agreement in the amount of $1,795,533.31” and lists the relevant contract numbers. The letter goes on to say that “we have been instructed by our clients to stand down this matter pending negotiations between the parties for an amicable settlement” and “[i]n the meantime, all of our clients’ rights are expressly reserved”.

[16] In the meantime, in August 2012, the plaintiff’s former counsel had removed himself as solicitor of record. He was the subject of disciplinary proceedings by the Law Society of Upper Canada and his licence to practice law was ultimately revoked.

[17] The file was transferred to plaintiff’s current solicitors in or about November 2013 with instructions to carry on with the action. The firm promptly moved for an order extending the time for service of the statement of claim. The motion was brought on an ex parte basis and was heard on January 10, 2014. Justice Gunsolus granted an order extending the time for service to March 31, 2014. The statement of claim was served on January 24, 2014.

[18] Part of the relief sought by the plaintiff in connection with the January 10, 2014 order was an order transferring the action from Peterborough to London. Justice Gunsolus did not grant that relief but consistent with this court’s protocol respecting changes of venue between regions, the matter was referred to the Regional Senior Justice for the Central East Region so that she could ensure the Regional Senior Justice of the Southwest agreed that the action should be transferred.

[19] On March 6, 2014, the defendants served a notice of intent to defend. On March 13, 2014, the plaintiff requested delivery of the defendants’ statement of defence. On March 25, 2014, the defendants served a request to inspect documents and a demand for particulars. On April 21, 2014, the plaintiff responded to those requests.

[20] On May 22, 2014, counsel for the defendants advised that he was of the view that the action was deemed dismissed as of January 1, 2012 by operation of Rule 48.15(6) of the Rules of Civil Procedure. Mr. Badger has deposed that neither the plaintiff nor his counsel were aware of the application of Rule 48.15(6).

[21] On May 27, 2014, the plaintiff received an endorsement from the Regional Senior Justice of the Central East Region transferring the proceeding from Peterborough to London. The defendants were advised on July 9, 2014.

Rule 48.15

[22] Rule 48.15 provides as follows:

(6) In the case of an action commenced before January 1, 2010, other than an action governed by Rule 76 or 77, the following rules apply, unless the court orders otherwise:

1. If a step is taken in the action on or after January 1, 2010 and before January 1, 2012, subrule (1) applies as if the action stared on the date on which the step was taken.

2. If no step is taken in the action on or after January 1, 2010 and before January 1, 2012, the action is deemed on January 1, 2012 to be dismissed as abandoned on that date, unless the plaintiff is under a disability.

3. An action deemed to be dismissed under paragraph 2 may be set aside under rule 37.14 and, for the purpose, the deemed dismissal shall be treated as if it were an order of the registrar.

The Parties’ Position

[23] The defendants submit that because the motion was brought at a time that the action was deemed dismissed, the resulting orders are a nullity. It relies on McLeod v. Scotia Life Insurance Company, 2013 ONSC 5852.

[24] The defendants further submit that the deemed dismissal ought not be set aside because the plaintiff has not properly explained its delay in the progress of the litigation; its explanation of inadvertence is inadequate; and the defendants are prejudiced.

[25] The plaintiff submits that at all material times the defendants were aware that the plaintiff had a claim against them (even if they were not aware of the statement of claim); that the delay in serving the statement of claim has been adequately explained; and that the plaintiff and its solicitors simply were unaware of the application of Rule 48.15(6). The plaintiff submits that this is a proper case to set aside the deemed dismissal and to regularize service of the statement of claim.

[26] Mr. Wallace quite properly conceded that the order transferring the proceedings from Peterborough to London should be set aside.

Considerations for setting aside a dismissal order

[27] I am guided by the following passage from 1196158 Ontario Inc. v. 6274013 Canada Limited, (2012) ONCA 544:

The civil justice systems aims to resolve disputes fairly on the merits and in a timely and efficient manner. The Rules of Civil Procedure provide that the rules are to the ‘liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits’: Rule 1.04(1).

Achieving that goal in cases involving dismissal for delay requires a careful balance of two fundamental principles. The first is that civil actions should, if possible, be decided on their merits and procedural rules should be interpreted accordingly. The second is that the procedural rules that aim to resolve disputes in a timely and efficient manner can only achieve their goals if they are respected and enforced.

Timelines prescribed by the Rules of Civil Procedure or imposed by judicial order should be complied with. Failure to enforce rules and orders undermines public confidence in the capacity of the justice system to process disputes fairly and efficiently. On the other hand, procedural rules are the servants of justice, not its master. We must allow some latitude for unexpected and unusual contingencies that make it difficult or impossible for a party to comply. We should strive to avoid a purely formalistic and mechanical application of timelines that would penalize parties for technical, non-compliance and frustrate the fundamental goal of resolving disputes on their merits. As Laskin J.A. stated in Finlay v. VanPaassen [citation omitted]…at para. 14: ‘The rules and procedural orders are construed in a way that advances the interests of justice, and ordinarily permits the parties to get to the real merits of their dispute’.

[28] In coming to a determination whether an order dismissing an action should be set aside, the court must be “concerned primarily with the rights of litigants, not with the conduct of their counsel”: Finlay v. VanPaassen, 2010 ONCA 204. In that case, the court went on to make this observation:

As Sharpe J.A. noted in Marché at para. 28, ‘The law will not ordinarily allow an innocent client to suffer the irrevocable loss of the right to proceed by reason of the inadvertence of his or her solicitor.’ Sharpe J.A. went on to recognize that the situation may be different where the lawyer’s conduct is not inadvertent but deliberate. In the case before us, however, the conduct of Finlay’s law firm was not deliberate, which affords a further basis to call into question whether the motion judge’s decision was just: see Chiarelli v. Wiens 2000 CanLII 3904 (ON CA), [2000 CarswellOnt 280 (Ont. C.A.)]; Gao v. de Keyser (2008), 61 C.P.C. (6th) 89 (Ont. Div. Ct.) at para. 27.

[29] I will return to this issue later.

[30] There is a considerable body of case law dealing with relief from registrar’s orders dismissing proceedings or motions to dismiss for delay. One of the often cited cases is Reid v. Dow Corning Corp. (2001), 11 C.P.C. (5th) 80 (Ont. Master) which set out a four part test. The Court of Appeal approved those four factors in Marché d’Alimentation Denis Thériault Ltee. v. Grant Tiger Stores Ltd. (2007), 2007 ONCA 695, 87 OR. (3d) 660 (C.A.). They are as follows:

1. an adequate explanation for the litigation delay;

2. inadvertence in missing the deadline;

3. the motion to set aside the dismissal is brought promptly; and

4. no significant prejudice to the defendant in presenting its case at trial as a result of the delay.

[31] All four factors need not be satisfied and a contextual approach that weighs all considerations to reach a just result is necessary: Scaini v. Prochnicki (2007), 2007 ONCA 63, 85 O.R. (3d) 179 (C.A.).

[32] The relevant principles were discussed by Master Muir in 744142 Ontario Limited v. Ticknor Estate, 2012 ONSC 1640 (Ont. Master) in the following terms:

32. In the last five years, the law relating to setting aside registrar’s dismissal orders has been the subject of seven decisions of the Court of Appeal for Ontario. Although each of those decisions brings a slightly different approach to the decision making process, the general approach first set out by the Court of Appeal in Scaini has been followed consistently. The principles that emerge from those decisions can be summarized as follows:

• the court must consider and weigh all relevant factors, including the four Reid factors which are likely to be of central importance in those cases;

• the Reid factors, as cited by the Court of Appeal in Giant Tiger, are as follows:

(1) Explanation of the Litigation Delay: The plaintiff must adequately explain the delay in the progress of the litigation from the institution of the action until the deadline for setting the action down for trial as set out in the status notice. She must satisfy the court that steps were being taken to advance the litigation toward trial, or if such steps were not taken to explain why… If either the solicitor or the client made a deliberate decision not to advance the litigation toward trial then the motion to set aside the dismissal will fail.

(2) Inadvertence in Missing the Deadline: The plaintiff or her solicitor must lead satisfactory evidence to explain that they always intended to set the action down within the time limit set out in the status notice, or request a status hearing, but failed to do so through inadvertence. In other words the penultimate dismissal order was made as a result of inadvertence.

(3) The Motion is Brought Promptly: The plaintiff must demonstrate that she moved forthwith to set aside the dismissal order as soon as the order came to her attention.

(4) No Prejudice to the Defendant: The plaintiff must convince the court that the defendants have not demonstrated any significant prejudice in presenting their case at trial as a result of the plaintiff’s delay or as a result of steps taken following the dismissal of the action;

• a plaintiff need not satisfy all four of the Reid factors but rather a contextual approach is required;

• the key points is that the court is to consider and weigh all relevant factors to determine the order that is just in the circumstances of each particular case;

• all factors are important but prejudice is the key consideration;

• prejudice to a defendant may be presumed, particularly if a lengthy period of time has passed since the order was made or a limitation period has expired, in which case the plaintiff must lead evidence to rebut the presumption;

• once a plaintiff has rebutted the presumption of prejudice, the onus shifts to the defendants to establish actual prejudice;

• prejudice to a defendant is not prejudice inherent in facing an action in the first place but prejudice in reviving the action after it has been dismissed as a result of the plaintiff’s delay or as a result of steps taken following the dismissal of the action;

• the party who commences the litigation bears the primary responsibility under the Rules for the progress of the action;

• in weighing the relevant factors, the court should not ordinarily engage in speculation concerning the rights of action a plaintiff may have against his or her lawyer but it may be a factor in certain circumstances, particularly where a lawyer’s conduct has been deliberate. The primary focus should be on the rights of the litigants and not with the conduct of their counsel.

Analysis

[33] In this case, I am entirely satisfied that the deemed dismissal order must be set aside in the interests of justice. First, the plaintiff has adequately explained the reason why the statement of claim was not served before it was. The plaintiff was engaged in lengthy and ongoing settlement discussions with the defendants aimed at resolving the dispute without the need for litigation. At one point, they were close to settlement. Understandably, the plaintiff did not want service of a statement of claim during that time to jeopardize ongoing efforts to resolve matters. To that extent, the decision not to proceed with the lawsuit was deliberate. However, it is clear that the plaintiff reserved its rights to proceed with the litigation in the event that a settlement did not materialize.

[34] It may be that there are some gaps in time during the chronology where nothing appears to have occurred but looking at the entire timeline in a contextual way, the delay has been amply explained.

[35] Furthermore, I am satisfied that the deemed dismissal order was missed through inadvertence. Although the plaintiff’s solicitors are deemed to have knowledge of the law, it is quite clear that many in the profession are not aware of some of the provisions of Rule 48.

[36] The words of Master Muir in 744142 Ontario Limited, supra, underscore this observation. She noted that “[i]n the last five years, the law relating to setting aside registrar’s dismissal orders has been the subject of seven decisions of the Court of Appeal for Ontario.” This is a remarkably large number of appellate cases relating to the same or related issues.

[37] There is also an article in the December 29, 2014 issue of The Lawyers Weekly in which it is reported:

The current administrative dismissal regime, in effect until Jan. 1, [2015] has led to malpractice claims. Whether because a status notice went astray, was misinterpreted, or for some other reason, several hundred Ontario lawyers have found themselves faced with claims related to dismissal of actions for delay. The total cost of these claims is in excess of $7 million.

[38] I can speak from personal experience to the many motions I have heard over the last several years seeking to set aside a registrar’s dismissal order. I think it can be fairly and confidently stated that the operation of Rule 48 has been overlooked by a large segment of the litigation bar.

[39] The motion to set aside the deemed dismissal was also brought promptly once Mr. Wallace was retained and was made aware of the defendants’ position.

[40] I am satisfied that there is no significant prejudice to the defendants in presenting their case at trial. Mr. Thapar attempted to argue that the defendants have been prejudiced because while the statement of claim was being held in abeyance, his clients made concessions to the plaintiff respecting the pricing of goods that they agreed to purchase. This is not prejudice to the defendants within the meaning of the Reid criterion. In fact, the defendants’ outstanding debt has been reduced by virtue of the application of the interim settlement, which is to their benefit.

[41] The documentary evidence of the transactions between the parties still exists. There is no suggestion that any relevant evidence has been destroyed. This is not a case that raises concerns about fading memories.

[42] Moreover, there is no evidence of prejudice in the defendants’ motion materials. The law clerk’s affidavit includes no allegations of prejudice. However, to the extent there is a presumption of prejudice because of the passage of time, it has been rebutted for the above noted reasons.

[43] For the sake of completeness, I will deal with the defendants’ contention that there was material non-disclosure in the motion material before Justice Gonsolus.

[44] First, it is difficult to understand how one is to disclose something of which one is unaware. Mr. Thapar complained that he was not able to “test” the plaintiff’s contention that it was unaware of the relevant Rule. He wanted to ask questions, for example, about the plaintiff’s current firm’s continuing legal education and the like. Such questions are irrelevant. The deemed dismissal occurred before Mr. Wallace was retained. Once he was made aware of the provision of Rule 48.15(6), a motion for relief was brought. The other undisclosed matters strike me as irrelevant on a motion to extend the time for service. Some of them are legal issues that can be addressed in the statement of defence – Mr. Dang’s involvement or the parties to the contracts, for example.

[45] As noted by the Court of Appeal in Chiarelli v. Wiens (2000), 46 O.R. (3d) 789:

Although the onus remains on the plaintiffs to show that the defendant will not be prejudiced by an extension, in the face of such a general allegation, the plaintiffs cannot be expected to speculate on what witnesses or records might be relevant to the defence and then attempt to show that these witnesses and records are still available or that their unavailability will not cause prejudice. It seems to me that if the defence is seriously claiming that it will be prejudiced by an extension it has at least an evidentiary obligation to provide some details. The defence did not do that in this case.

[46] Those comments apply equally to this case.

[47] The defendants seek an order dismissing the claim against Mr. Dang on the basis that no reasonable cause of action has been pleaded against him. They rely on Rule 21 and 51.06 of the Rules of Civil Procedure. They rely on certain admissions they say were made during Mr. Badger’s cross-examination. As I observed during the hearing of the motions, no evidence is admissible on a motion pursuant to Rule 21.01(b). I am also not certain that relief can be granted under Rule 51.06 without an underlying motion pursuant to Rule 20 or perhaps Rule 21.01(a). The law on this issue is not clear. The decision in Ford Motor Co. of Canada v. Ontario Municipal Employees Retirement Board, 1997 CanLII 1302 (ON CA), [1997] O.J. No. 4298 (C.A.) provides as follows:

Rule 20 contains no explicit reference to a party’s admissions. Nonetheless, the combined effect of Rule 20 and 51.06, which I think overlap to some extent, may provide access to summary judgment for part of a claim where there has been a relevant admission. Rule 51.06 provides:

51.06(1) Where an admission of the truth of a fact or the authenticity of a document is made,

(a) in an affidavit filed by a party;

(b) in the examination for discovery of a party or a person examined for discovery on behalf of a party; or

(c) by a party on any other examination under oath or affirmation in or out of court,

any party may make a motion to a judge in the same or another proceeding for such order as the party may be entitled to on the admission without waiting for the determination of any other question between the parties, and the judge may make such order as is just.

(2) Where an admission of the truth of a fact or the authenticity of a document is made by a party in a pleading or is made or deemed to be made by a party in response to a request to admit, any party may make a motion in the same proceeding to a judge for such order as he or she may be entitled to on the admission without waiting for the determination of any question between the parties, and the judge may make such order as is just.

(3) If Rule 30.1 applies to the admission, its use in another proceeding is subject to Rule 30.1. (deemed undertaking).

The purpose of Rule 51.06 somewhat parallels Rule 20’s purpose. If a party makes an admission (as occurred in the defendant’s statement of defence in Roytor), Rule 51.06 gives the beneficiary of the admission access to an order based on the admission. For example, if a defence admits to liability, or a particular part of a loss claimed by the plaintiff, Rule 51.06 would permit a motions judge to grant an order based on the admission. Such an order will typically take the form of a summary judgment for part of the plaintiff’s claim.

Dzamba v. Hurst, [1989] O.J. No. 1261 provides an example of the combined effect of Rules 20 and 51.06. In that case Master Clark held that Rule 51.06 provided a source of relief of the same nature as that available under Rule 20. He did not think Rule 51.06 limited Rule 20. However, in Mason’s Masonry Supply Ltd. v. 690884 Ontario Limited, [1993] O.J. 10, Ground J. concluded that the two rules served a different purpose. He refused summary judgment for “part of” the plaintiff’s claim. He held that the motion should have been brought under Rule 51.06, since the basis of the plaintiff’s claim for payment of $5,000 before trial was an admission made by the defendant.

The relationship between Rules 20 and 51.06 remains somewhat unclear and does not have to be resolved here. All that I need say is that I think the two rules serve a similar, but not identical purpose. Rule 20’s purpose is to remove actions, or distinct issues with respect to which there is no genuine issue for trial from the trial system. This advances procedural justice. Rule 51.06’s purpose is to permit an appropriate order to be made as a result of a party’s admission. An order made under Rule 51.06 in response to an admission may or may not shorten the trial. I see no reason why a summary judgment may not be granted for part of a claim through the combined effect of Rules 20 and 51.06 if there is an admission that satisfies the no genuine issue for trial test and, in the language of Rule 51.06, the order sought (a partial summary judgment consistent with the admission is an order to which “the party may be entitled without waiting for the determination of any question between the parties.” (Rule 51.06(2)).

[48] In a later case, Robinson v. Rochester Financial Ltd., 2010 ONSC 463, [2010] O.J. No. 187 (S.C.J.); leave to appeal dismissed 2010 ONSC 1899, [2010] O.J. No. 1481 (Div. Ct.), Justice Lax referred to the Ford Motor case and noted as follows:

…according to the Ontario Court of Appeal, it would appear that rule 51.06 and Rule 20 serve a similar purpose and are used in combination to obtain summary judgment for part of a claim if there is an admission that satisfies the no genuine issue for trial test and, in the language of rule 51.06, the order sought (a partial summary judgment consistent with the admission) is an order to which “the party may be entitled without waiting for the determination of any question between the parties” … FMC has not brought a motion for summary judgment and the admissions cannot be used in the manner proposed to obtain a dismissal of the action.

[49] In the circumstances, however, I need not decide this issue because having been referred to the transcript of Mr. Badger’s cross-examination, I am not persuaded that any admissions were made respecting Mr. Dang.

Disposition

[50] For these reasons, the motion for an order setting aside the ex parte Order of Justice Gonsolus is dismissed. The cross motion for an order setting aside the deemed dismissal is granted. An order shall issue validating service of the statement of claim and the deadline for service is extended nunc pro tunc to January 24, 2014 (the date of actual service).

[51] The order transferring the proceeding to London is set aside. The defendants were affected by that order and should have an opportunity to respond. There does not appear to be any connection between the action and London except that the plaintiff’s law firm is located here. However, I do not think it is prudent or cost effective to return the file to Peterborough, which has no apparent connection to the proceeding.

[52] As a result, my order setting aside the change of venue order will not be effective for 90 days from the date hereof so that the parties can discuss and agree on a suitable venue or bring a motion, if necessary, during that time.

[53] If the parties cannot agree, I will receive brief submissions on costs, first from the plaintiff by January 26, 2015 and from the defendants by February 6, 2015.

“Justice H. A. Rady”

Justice H. A. Rady

Released: January 15, 2015