Court File and Parties

2016 ONSC 2835

Court File No.: 49075 Date: 2016-04-28 Superior Court of Justice - Ontario

Re: The Corporation of the City of London, Plaintiff And: Osler Hoskin & Harcourt LLP, Steven W. Smith, Robert Beaumont and Camilla A. MacKenzie, Defendants

Before: Heeney R.S.J.

Counsel: J. Downing, for the Plaintiff L. Thacker and R. Gillis, for the Defendants

Heard: March 14, 2016 at London

Endorsement

[1] This is a motion by the defendants to dismiss the action for delay.

[2] The action involves a commercial transaction that took place in 2001. The plaintiff was selling its interest in a telecommunication service provider to GT Group Telecom Services Corp. (“GT”). The defendants acted for the plaintiff on the transaction. The purchase price was $8,200,000, but it was payable in an unusual manner: $3,250,000 was due on closing, but the balance was due in three equal annual installments of $1,650,000.

[3] Several forms of security for the deferred payments were discussed. Ultimately, it was agreed that GT would place $2,475,000 into an account pursuant to an Escrow Agreement, and this fund would be reduced by $825,000 following each installment payment. However, GT got into financial trouble, and sought protection under the Companies’ Creditors Arrangement Act. Its secured lenders asserted a claim against the balance of $1,650,000 remaining in the escrow account at the time.

[4] The plaintiff ended up settling with the secured creditors whereby it got $400,000 from the escrow account and the creditors got the rest. It then sued the defendants for failing to consider and advise the plaintiff as to the risk that GT’s secured creditors posed to securing the installment payments by way of the Escrow Agreement, in the event GT became unable to pay its debts.

[5] The Statement of Claim was issued on December 22, 2005. The Statement of Defence was delivered on September 27, 2006.

[6] Thereafter, nothing much happened with the lawsuit until the Registrar issued a Status Notice on November 13, 2008. Mr. Van Klink, who was acting for the plaintiff, requested a status hearing in writing on March 5, 2009. On March 10, 2009, the Registrar dismissed the action for delay despite having received the request for a status hearing.

[7] On June 30, 2009, Jenkins J. set aside the administrative dismissal, on the basis that the Registrar lacked jurisdiction to dismiss the action once a status hearing had been requested.

[8] A status hearing was held on December 18, 2009 before Rady J. At that hearing, the defendants sought to have the action dismissed for delay. Justice Rady declined to do so. She accepted that the only explanation for the delay was Mr. Van Klink’s acceptance of responsibility that he was busy with other matters. She found it would be unreasonable to visit the consequences of the solicitor’s delay on the client. She then stated: “In any event, I am satisfied that there is no prejudice.” She observed that the status hearing notice seems to have breathed some life into the file.

[9] No timetable was established at the status hearing. Justice Rady wrote in her endorsement: “If the parties cannot agree on a litigation timetable, counsel can arrange to speak with me.” However, neither counsel took her up on her offer.

[10] The plaintiff then took steps to move the matter forward. Mr. Van Klink wrote to Mr. Griffin, counsel for the defendants, several times in 2010 requesting the defendants’ Affidavit of Documents and available dates for examinations for discovery. He received no response. On August 3, 2011 Mr. Van Klink sent Mr. Griffin a draft discovery plan for his approval or comments. The response he received on August 4, 2011 was that the associate who had been assisting with the file had left the firm, and Mr. Griffin needed “to do a bit of reconnoiter to figure out where we are in all of this.” He promised to get back to Mr. Van Klink “as soon as I sort out where we are.”

[11] No further response was received, which led the plaintiff to serve a Notice of Motion on December 29, 2011 for an order striking the Statement of Defence. Following that, the defendants Affidavit of Documents was served on January 19, 2012, and a discovery plan was agreed to on January 19, 2012. Examinations for discovery were commenced in August, 2012, and completed on September 19, 2012. One of the plaintiff’s undertakings was fulfilled the following day.

[12] Other than one letter from counsel for the defendants on November 20, 2012 to Mr. Van Klink which enclosed an undertakings and refusals chart, neither party did anything to advance the file for the next 21 months until the defendants’ counsel wrote to Mr. Van Klink on June 11, 2014 with answers to their undertakings.

[13] Thereafter, Mr. Van Klink had some telephone and written correspondence with the City Solicitor in the summer of 2014, but otherwise did nothing to move the file forward until the defendants served their Motion Record to dismiss the action for delay on October 13, 2015.

[14] The plaintiff has taken steps to move the matter to trial since being served with the Motion Record. The plaintiff’s undertakings were complied with in November, 2015, and the action has been set down for trial, and will be spoken to at Assignment Court on May 20, 2016 for the purpose of obtaining a trial date. Their expert’s report was served on March 10, 2016. The plaintiff is now ready for trial.

[15] As a matter of housekeeping, it is necessary for the plaintiff to obtain leave of the court to file the supplementary affidavit of Mr. Van Klink attesting to service of the expert’s report. Since the affidavit addresses new developments in the case that have transpired since cross-examinations were held, it is appropriate that leave be granted.

[16] Under Rule 24.01, a defendant may move to have an action dismissed for delay, in certain specified circumstances. The defendants rely upon subrule 24.01(1)(c), which is failing to set the action down for trial within six months after the close of pleadings. Mr. Thacker, for the defendants, concedes that subrule 24.01(2) does not apply, because neither of the circumstances described in paragraphs 1 and 2 of subrule 48.14(1) apply. Indeed, under the amendments to subrule 48.14, the plaintiff had until January 1, 2017 to set the action down for trial.

[17] The law is well established that a case may be dismissed for delay in two situations. The first is where the delay is intentional or contumelious. The defendants do not rely on that ground.

[18] The second was described by Doherty J.A. in Langenecker v. Sauvé, 2011 ONCA 803, quoted with approval in Faris v. Eftimovski, 2013 ONCA 360 at para. 28:

The second type of case that will justify an order dismissing for delay has three characteristics. The delay must be inordinate, inexcusable and such that it gives rise to a substantial risk that a fair trial of the issues in the litigation will not be possible because of the delay.

[19] Given that Rady J. has already judicially determined that the delay that occurred prior to the status hearing in December, 2009 did not justify an order dismissing the action for delay, the focus must be on the period subsequent to her order: see Armstrong v. McCall, [2006] O.J. No. 2055 (C.A.) at paras. 20 and 22.

[20] The first period of delay runs from the status hearing in December, 2009, up to September, 2012 when examinations for discovery were completed. Fault for that lies with the defendants, not with the plaintiff. It was the defendants who were in default in not providing their Affidavit of Documents until January, 2012, and in failing to cooperate in finalizing a discovery plan and dates for examinations.

[21] The second period of delay runs from September 20, 2012, which was the day after the completion of examinations, until June 11, 2014, when the defendants complied with their undertakings. Neither party did anything to advance the file during this 21 month period, and both sides were equally in default in having failed to comply with their undertakings. I infer that both sides were content with the leisurely pace of this litigation, and neither took the view that there was any urgency to move the matter forward.

[22] While I appreciate that the plaintiff bears the primary responsibility for moving the case to trial, defence counsel’s lack of display of any sense of urgency undercuts any claim of actual prejudice: see H.B. Fuller Company v. Rogers (Rogers Law Office), 2015 ONCA 173 at para. 42. The objectives of timely and efficient justice require all parties to play their parts in moving actions forward: see Carioca’s Import & Export Inc. v. Canadian Pacific Railway Limited, 2015 ONCA 592 at para. 53.

[23] The only period of delay attributable solely to the plaintiff is the period from June, 2014 to October, 2015, when the defendants’ Motion Record was served. The plaintiff and their counsel did nothing to move the file forward to trial during this 16 month period. Once again, Mr. Van Klink accepts full responsibility. He attests that several times since the completion of the examination for discovery he intended to move the matter forward but his workload on other files prevented him from doing so. This is understandable, since the partner with whom he practiced most closely left the firm in February, 2014, and all of her files fell to him to handle.

[24] Is this 16 month delay inordinate and inexcusable? I do not find that it is. While it is certainly deserving of the court’s criticism, it is not the kind of delay that would justify the draconian measure of an order dismissing the action for delay. The defendants can hardly be heard to complain about a 16 month delay caused by the plaintiff when they themselves were solely responsible for a delay of about twice that long following the status hearing.

[25] It is also important that the defendants did nothing during this 16 month period to demand that the plaintiff answer its undertakings and get the matter moving. Once again, this suggests that they were content with the slow pace of the litigation. Had they written time after time during this period demanding compliance, and threatening to bring a motion to dismiss for delay, one might be more inclined to characterize the period of delay as inordinate and inexcusable.

[26] The third element that must be established is that there is a substantial risk that a fair trial of the issues in the litigation will not be possible because of the delay. Here the defendant can point to no actual prejudice, such as the death or unavailability of a material witness or the loss of important evidence. Rather, they rely on the presumption of prejudice that arises from the passage of time. The memories of witnesses can be presumed to fade with time. It falls to the plaintiff to rebut this presumption.

[27] It is true that 15 years have elapsed since the transaction in question, and memories can be presumed to have faded over that time. However, the period of delay that is under scrutiny here did not begin until June, 2014, and the presumption that memories will fade with time must relate to this period. As van Rensburg J.A. noted in Carioca’s Import and Export (supra, at para. 57), “[t]he prejudice at issue is the respondent’s ability to defend the action as a result of the appellant’s delay, not as a result of the sheer passage of time.” In my view, any deterioration of the memories of the witnesses in this case due to the passage of time would have occurred long before June of 2014, and cannot be attributed to the period of delay in question: see Law v. Whelan, 2012 ONSC 1023 at para. 76.

[28] The transaction in question was a major one, handled by one of Canada’s largest law firms, and was heavily documented. Extensive documentation, totalling 612 documents, has been assembled in the Affidavits of Documents to preserve and refresh the memories of the fact witnesses. Examinations for discovery have been completed, so that the memories of the key players have been preserved.

[29] The defendants allege that there are several key fact witnesses whose evidence has never been preserved. They include four representatives from GT who were involved in the transaction, and the plaintiff’s financial advisor from RBC Dominion Securities. Those individuals have never been interviewed or examined.

[30] However, the defendants only sought to question two of these individuals, in an email request sent by their counsel on May 27, 2004, prior to the commencement of litigation. That request was denied, and the defendants took no further steps to question these people. If their evidence was important, the defendants could have sought leave under Rule 31.10 to examine them.

[31] It is clear that the defendants took no steps at all to question the rest of the witnesses that they claim are crucial to their ability to defend the action. If the memories of those witnesses have now faded to the point where they will be unable to assist the defendants, the responsibility for such prejudice falls at the feet of the defendants themselves. In Labelle v. Canada (Border Services Agency), 2016 ONCA 187, Roberts J.A. made the following observations at para. 23:

In starting this analysis, it is important to recall the general principle that only prejudice to the respondents caused by the appellants' delay in these proceedings is a relevant factor in determining whether the registrar's dismissal order should be set aside: Habib v. Tunaj, 2012 ONCA 880, at para. 5. Prejudice to the defence that exists regardless of the appellants' delay is not relevant: Chiarelli, at para. 16. Further, as noted by this court in Chiarelli, at para. 15, "[T]he defence cannot create prejudice by its failure to do something that it reasonably could have or ought to have done", such as interviewing witnesses, conducting surveillance, or otherwise preserving relevant evidence.

[32] The fact that counsel for the defendants never interviewed or sought to examine these witnesses undermines the suggestion that they have relevant and important evidence to offer. Furthermore, it is speculation to suggest that the memories of these witnesses as to the transaction in question have faded, since no-one has bothered to ask them what they do or do not remember about it.

[33] I find that no actual prejudice to the ability of the defendants to defend this case, caused by the plaintiff’s delay, has been established. I am further satisfied that the presumption of prejudice flowing from the passage of time during the relevant period has been rebutted.

[34] The threshold to be met by the defendants on this motion is a high one. The court’s bias is in favour of deciding matters on their merits rather than terminating rights on procedural grounds: H.B. Fuller Company (supra, at para. 26).

[35] It is relevant to consider that the plaintiff at no time breached any court order or timetable imposed by the court. That distinguishes this case from virtually every case relied upon by the defendants. It is also relevant that the plaintiff set the action down for trial more than one year earlier than the deadline imposed by subrule 48.14(1) as amended.

[36] The defendants have failed to demonstrate that an order dismissing this action for delay is justified. The motion is dismissed.

[37] With respect to costs, counsel have agreed that the appropriate quantum of costs for the successful party is $26,000. However, given that this is a motion to dismiss for delay, Mr. Thacker submits that no costs should be awarded to the plaintiff even if successful.

[38] I agree that denying costs would be appropriate if the plaintiff was seeking an indulgence from the court, such as an order setting aside a default judgment or an administrative dismissal. However, this is a motion to dismiss for delay initiated by the defendants. As I have outlined above, the defendants are responsible for a greater share of the delay that has occurred since the status hearing of December 18, 2009 than the plaintiff.

[39] The defendants’ motion is without merit. The presumptive consequences of bringing an unmeritorious motion is an adverse award of costs. There is no reason to depart from that presumption in this case. Costs are awarded to the plaintiff fixed at $26,000.

“T. A. Heeney R.S.J.” Regional Senior Justice T. A. Heeney Date: April 28, 2016