COURT FILE NO.: 10-CV-398381
Heard: March 30, 2016
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Quality Used Cars Wholesale Ltd. v. Trader Corporation
BEFORE: Master Joan Haberman
COUNSEL: Edwards, M. for the defendant
Cohen, C. for the plaintiff
ENDORSEMENT
Master Haberman:
[1] I have one motion before me from each party. In a very thin record, and an even thinner supplementary record, the plaintiffs seek to vary Master Brott’s order of November 9, 2012. The defendant opposes the motion and has brought its own motion to dismiss the action for delay.
[2] A chronology of what has transpired to-date is my starting point for both motions.
HOW WE GOT HERE
[3] The action was started by statement of claim, issued on March 4, 2010 and amended in November of that year. According to the amended statement of claim, each plaintiff claims $5 million in connection with an alleged breach of oral contract as to the manner in which the defendant advertised or failed to advertise the plaintiffs’ product, used cars. The breach allegedly began in May 2009.
[4] Although the statement of defence was served in December 2010, the action did not proceed to discoveries until December 2011 and May 2012. According to the affidavit of Edward Letichever, president of the plaintiff, Quality Used Cars Wholesalers Ltd., the parties completed their answers for undertakings. This, however, is disputed.
[5] A status notice was issued by the court on March 26, 2012. As the plaintiffs failed to set the action down for trial or request a status hearing in response, the action was dismissed for delay by the registrar on July 4, 2012.
[6] The plaintiff moved to set aside the dismissal order and was successful in that regard. On November 9, 2012, Master Brott set the order aside and established a timetable for the action. The order required all parties to comply with undertakings by December 14, 2012; to complete all discovery motions by February 15, 2013 and to complete mediation by October 31, 2013. It was also ordered that the action had to be set down for trial by October 31, 2013, failing which the registrar was required to dismiss the action for delay with costs.
[7] Although the order was properly entered into the computerized file management system, the registrar who completed the data entry neglected to adjust the timeline at the end of the document. It is the timeline that the computer scans when generating a dismissal order. As a result of that omission, the trigger for dismissal of the action was not activated when the deadline passed without action by the plaintiffs. The court registrar therefore failed to dismiss the action immediately after October 31, 2013 as required.
[8] That was over two years ago. Throughout the intervening period, the plaintiff has taken no steps to address their breach of Master Brott’s order, failing to either set the action down for trial or to seek an extension of the date by which they were required to do so.
[9] The action proceeded to mediation on April 3, 2013. Mr. Letichever is open about the fact that settlement discussions stalled for want of a damage report from the plaintiffs. As a result of this evidentiary gap, the parties agreed at the end of the mediation to resume their discussions after having exchanged their respective reports. This would have been a good opportunity for the plaintiffs to make it clear that this was going to be an extremely difficult task for them to complete but they did not do so.
[10] Mr. Letichever does not explain in his evidence why the plaintiffs proceeded to mediation without their damage report and why they had not yet obtained one when these motions were booked. The claim is a very large one - $10 million - and it is based on an alleged oral contract. It is difficult to understand how the plaintiffs expected the defendant to approach settlement of such a sizeable claim in the absence of their having demonstrated, in a credible and tangible way, how the damages they sought had been calculated.
[11] No expert was retained to address damages until April 17, 2013, after the mediation. Thus begins a long saga of ongoing delay, lack of information being passed on as to why that was the case and apparent stalling.
[12] Initially, there was some delay getting the report started due to what appears to have been a miscommunication between counsel and the export. The report was then promised for Mid-December 2015, well over a year and a half after the expert was retained. The evidence shows that during this time, there was no communication to the defendant as the true nature of the plaintiff’s difficulties getting a damage report together.
[13] Although it was not entirely clear from the evidence filed in support of the plaintiffs’ motion, I glean from what was disclosed that a large part of the delay in getting started was the plaintiffs’ missing records. This was confirmed by what they filed in response to the defendant’s motion. All we are initially told is that a fire in the plaintiffs’ accountant’s office (no date for same or location of that office was provided in the evidence supporting this motion) destroyed their financial records for the relevant period. As a result, Mr. Letichever states that the plaintiffs had to work closely with their accountants to glean the required information from other sources. This process has taken a significant amount of time. Again, the evidence is presented in summary form, without details. The details only emerged in response to the defendant’s motion to dismiss.
[14] The plaintiffs were aware that their accounting records were apparently lost in a fire before they issued process. It is unclear why they waited more than three years before beginning this reconstruction exercise to support their damage claim. Having commenced this action, this is an issue they should have begun to address early on.
[15] A good beginning would have been to obtain copies of tax returns and notices of assessment immediately, both of which they could have requested from CRA. HST records would also have been available from government sources and bank statements could have been obtained from their financial institution. Further, some of the documents reflecting current transactions, including copies of financial statements, quarterly budgets and financial forecasts, as well as logs reflecting current sales and cost of supplies, labour and fixed costs would likely have been with the plaintiffs at the time of the fire. Although no dates were provided for the Retail Sales Tax audit that was being undertaken (the reason the accountants had the documents), it was likely a retrospective review, such that the plaintiffs were able to retain documents they needed for day to day operations. None of this is explained.
[16] The supplementary record contains a further affidavit, but not from Mr. Letichever. Instead, one of Ms. Cohen’s assistants swore this affidavit. He states that some financial disclosure has been made, in the form of financial statements, tax returns and summaries of total sales which were served in compliance with undertakings in January 2013. The financial statements were for the years ending 2006 to 2012 and are not audited, but it appears no source documents were provided. Copies of tax returns for the same years were also provided. There is no reference to notices of assessment having been served, though these are easily obtained from CRA. This disclosure was made before the mediation and was obviously not sufficient to support such a significant claim.
[17] It was not until February 18, 2016, almost three years after the mediation, that the plaintiffs’ expert, CVLP, provided a one- page letter stating as follows:
We remain of the view that absent complete information, we are precluded from rendering an opinion as to the quantum of the plaintiff’s loss.
[18] In view of their conclusion, they, instead, took an unconventional approach to estimating loss in this case. They say they created a report based on the assumption that the companies earn gross margin and net profits consistent with the industry averages and that state that they expressed the losses in a range of values. They note that they relied on Statistics Canada Small Business Profiles and the DesRosiers Automotive Consultants Inc. Yearbook to assist them. They point out, however, that DesRosiers does not report net profit margins on Canadian used vehicle sales in its annual publication. As this is the plaintiffs’ business, there is some question as to how helpful this report, based on general estimates that do not necessarily reflect the used car industry, and bear no relation to this particular company, will be at trial.
[19] CVPL also states that this letter is to be read in conjunction with their report, a copy of which was not in these materials, but only emerged in response to the defendant’s motion. Finally, they state that their calculations do not include other potential components of the companies’ losses, such as incremental advertising costs incurred in managements’ attempt to mitigate their losses after the defendants’ alleged action. They say that the plaintiffs have separately compiled these costs but these, too, have not been provided to the court.
[20] The deponent states that the plaintiffs advised the defendants in writing that further disclosure will be made (no description of what that consists of) after the determination of the motion. It therefore remains unclear even now how the plaintiffs plan to establish their respective alleged losses for the years 2006-2010. It is unclear if this future disclosure will be significant in terms of volume and/or terms of what they add to the plaintiffs’ financial picture. All of this has been left to be dealt with after the motion, according to counsel, to save paper and the cost of the exercise, in the event they lose.
[21] Letchivever states that it has always been and remains the intention of the plaintiffs to proceed with this action. The plaintiffs will take all steps necessary to bring this matter to conclusion as soon as possible. This statement, hearsay to begin with, is also not consistent with the second affidavit and the decision to further delay disclosure until after the motion has been dealt with.
[22] That is the totality of the plaintiffs’ evidence in support of their own motion to vary the timetable. There is nothing in the affidavit to explain why the action was not set down for trial, as ordered or why the plaintiff did not seek a further extension of the set down date. There is also no explanation as to how the plaintiffs expected to advance their claim, absent the necessary damage documents; why they took no steps to address the issue before mediation; and why they failed to disclose the remaining documents they say they now have, putting this over until after the completion of the motion. Having those documents would assist the court in understanding how much of the relevant damage documentation is still missing, an important consideration in the context of a $10 million claim.
[23] The plaintiffs filed further evidence in response to the defendant’s motion to dismiss, in the form of a further affidavit from Mr. Letichever, this one dated February 16, 2016. Although the plaintiffs filed their motion first and should have included all of the evidence they planned to rely on in support of their own motion at that time, as both motions will lead to one result, I am prepared to consider this additional evidence in the context of the plaintiffs’ motion.
[24] In his second affidavit, Letichever gets into a discussion about the missing documents. He states that the plaintiffs cannot claim they suffered prejudice attributable to the delayed production, as the fire that destroyed the documents occurred in September 2009, before the action was commenced. At that time, “certain” of the plaintiffs’ sales records were at their accountant’s office as they were undergoing a Retail Sales Tax Audit. The specific records of which Letichever speaks are not identified, however, and no amended schedule “C” to the plaintiffs’ affidavit of documents has been served to identify which documents were destroyed.
[25] A letter from the accountant, Benazzi, is attached as an exhibit. Benazzi states that the fire was the result of arson and originated in the office of their on-site lawyer. The plaintiffs’ boxes of records were actually used to start the fire, and the fire triggered the sprinkler system, causing a flood. Although there is some reference to what the accountant believes was lost in this event, it is neither a complete list nor is this sworn evidence. He speaks of the boxes having included sales invoices, bank statements, purchase invoices and other pertinent documents relevant in an audit. What else they contained or did not contain is not disclosed
[26] Aside from failing to provide a complete list of what was contained in the boxes, Benazzi does not actually state that all of the documents were lost to flood or fire or whether any were ever retrieved. There is also no evidence as to efforts made to rebuild what was lost, either from Benazzi or from Letichever. Copies of bank statements can be obtained from the bank, for example. Was this done? As a result of all the foregoing, even at this late date, it remains unclear what documents were, or were not, available for the expert’s use. The plaintiffs have already conceded that they have yet to produce further damage documents they have in their possession that they have not yet provided to the defendant.
[27] What is particularly odd about this situation is that the plaintiffs knew from the start that they were missing what they now say is the vast majority of documents needed to prove this claim. In view of the loss, there had to have been long discussions with Benazzi about the impact of the lost documents, initially, on the plaintiffs’ ability to cope with the outstanding Retails Sales Tax audit and secondly, going forward with their business. A company needs records of its past in order to create budgets and future forecasts. Yet, it seems from the evidence that nothing was done at the time of the loss to address the missing materials.
[28] Further, this action arises from events that occurred in May 2009, four months before the records were destroyed. As a result, it would have been known when the action was commenced that the missing financial records would impede the plaintiffs’ ability to quantify and prove their damages. Despite that, they issued a claim for $10 million, saying nothing about this issue. They proceeded to mediation, agreeing to resume once they had a damage report in hand, all the while knowing how difficult it would be to prepare one. Yet they failed to mention any of this to the defendant.
[29] Letichever claims that CVPL, the accountant and the plaintiffs worked hard to overcome the challenges resulting from the loss of the destroyed documentation. He goes on to state that this caused the majority of the delay, but he says nothing about what caused the remainder of it, when this “hard work” began and what form it took. His attached chart raises questions about follow up problems, possibly attributable to counsel, possibly the result of the plaintiffs’ delay. This is not clear.
[30] A copy of the CVPL report, dated February 12, 2016 is appended as an exhibit. In paragraph 1.7 of the report, the expert states as follows:
Our analysis has been restricted because the vast majority of the Companies’ accounting and financial records (as they then existed) were destroyed in a fire at the offices of the Companies’ external accountants, Benazzi and Company Professional Corporation that occurred on or around September 8, 2009. In addition, Benazzi and Co. has been unable to extract data from its legacy accounting software and the accounting records produced since the fire do not have the level of detail necessary to fully scrutinize the nature and purpose of the expenditures.
[31] At paragraph 1.8, the expert concludes that they were able to reconstruct some of the records but that the records are incomplete. He states:
Absent complete information, the assessment of the Companies’ loss is not subject to a rigorous quantitative analysis and this precludes us, as financial experts, from rendering an opinion as to the quantum of the Companies’ loss. Our observations in this report are based primarily on our review of the Companies’ year-end financial statements and other available information as noted.
[32] It apparently took the expert almost three years to reach this conclusion. Yet, only six days later, the expert produced the alternate approach report. There is no explanation as to why, in view of the expert’s comments that the vast majority of the plaintiffs’ documents were missing, this latter form of report was not prepared years ago. The action has been on hold all this time for a damage report, and this is the end result.
[33] Letichever then turns in his evidence to the issue of prejudice, in an attempt to refute what the defendant has claimed. He refers to three witnesses (O’Brien, Sidoti and Da Costa), and states that though they no longer work for the plaintiffs, they are still “local” and can be summoned as witnesses for trial.
[34] LinkedIn pages for Da Costa and Sidoti are appended and indicate that Da Costa is still employed in Toronto and Sidoti works in Mississauga. Although Letichever states that the exhibit appended at tab E indicates that O’Brien works, with Sidoti, at Dealertrack Technologies in Mississauga, there are no documents at tab E that mention O’Brien. As the record pages are numbered, I confirmed that there are no missing pages.
[35] In the very next paragraph, Letichever contradicts himself, stating that O’Brien actually works in Toronto, as per an exhibit appended to the defendant’s materials. This appears to be accurate.
[36] I turn to the defendants’ record for the remainder of the narrative. They note that, separate from this action, Traders started an action for unpaid invoices, using the services of a different counsel. Although the evidence notes that the two actions were consolidated in April 2013, there was no data entry in this case history for this action to reflect that such an order was made.
[37] The defendants explain that in late January 2014 the plaintiffs advised they were working on their expert’s report and that they would have it within two to three months. The defendants indicated they would be interested in seeing it and returning to mediation. This information was passed along more than nine months after the attendance at mediation that had been adjourned to give the plaintiffs time to provide an expert’s report on damages.
[38] Time passed and the report failed to appear. On October 2, 2014, more than eight months later, counsel for Traders as a plaintiff in the related action was told he would have the report within the next 30-45 days. On October 28, 2014, the plaintiffs were informed that Traders would move to dismiss the action for delay unless the expert’s report was received by November 17, 2014. In that context, on November 18, 2014, the plaintiffs advised that the report was still not available but that they would provide a timeline for its delivery the following week.
[39] At that time they advised there had been difficulties getting the report as the person they retained had left his employment without notice and they didn’t learn about it until May 2014. A new expert from the same firm was not retained until September 2014, and he requested substantial documentation that took plaintiff’s counsel until November 18, 2014 to provide. I note that none of this is referred to in the plaintiffs’ affidavit evidence.
[40] Further, there was still no indication, by that point, that defence counsel had been told that many of these documents had been destroyed by a fire and flood. Despite promise after promise to provide the report, it was only in November 2014 that the defendant was told about any of the difficulties encountered in trying to draft this report, and that was in the context of the errant expert. This was more than a year and a half after the mediation and there was still no reference to the fire and flood and the missing documents.
[41] At that time, the defendant was told that:
• The expert retained left his employment without notice and this was not discovered until May 2014;
• A new expert from the same firm was retained three months later in September 2014; and
• The new expert requested substantial documentation that took them until November 18, 2014 to provide to the new expert.
[42] There is no explanation from the plaintiffs as to why they waited from May to September 2014 to retain a new expert, having learned that theirs had left the firm. This was raised by defence counsel in their response of November 19, 2014, along with some other issues.
[43] It is also clear from the November 19 response that the defendant was still unaware of the missing documents at that time, as they express confusion as to why the plaintiffs are unable to simply retrieve their financial records from their accountant. Nowhere in the plaintiffs’ evidence is there any explanation as to why they withheld this critical information. I am therefore left to draw my own conclusions.
[44] On November 28, 2014, further promises were made by plaintiffs’ counsel, this time indicating that she expected to have a timeline from the expert the following week. Nothing further about that was heard. Instead, in early December, plaintiffs’ counsel canvassed dates for a return to mediation, something the defendant had agreed to do once the damage documents had been received.
[45] The defendant made it clear they were not prepared to resume mediation without the long-promised expert report. On December 11, 2014, defence counsel was told the report would be provided “shortly”. That was the first time any reference was made to the challenge in completing this task caused by the fire. There is a vague reference to the fact that one of the issues causing the delay was the fire in the accountant’s office, which plaintiffs’ counsel suggests was already known to the defendant. She has provided no evidence, however, to indicate how or when they would have become aware of this, nor does her e-mail indicate the scope of the problem created by the missing records.
[46] A further nine months passed without the promised report. On October 13, 2015, plaintiffs’ counsel wrote to say she was still trying to finalize timelines with the expert and, on November 5, 2015, more than two years after the court-ordered set down date, plaintiffs’ counsel sought consent to vary Master Brott’s timetable order. Consent was not forthcoming and, instead, the defendant moved to dismiss the action.
[47] At the time Mr. Mersky swore his affidavit in support of the defendant’s motion, they had still not received the expert’s report. The remainder of Mersky’s affidavit addresses prejudice. First, he states that the fact that the Plaintiffs’ records have now been destroyed without having been disclosed or produced has caused substantive prejudice to the Defendant. Among other things, the Defendant will have no ability to review the accounting records.
[48] He then discusses the lengthy delay as being prejudicial, in and of itself. He notes that the defendant’s business is volatile and in flux, which has led to problems regarding the availability of witnesses. Mark O’Brien, who was examined for discovery on behalf of the defendant now works elsewhere, as does the unnamed employee who was responsible for the plaintiffs’ account.
THE LAW, ANALYSIS and CONCLUSION
The plaintiffs’ motion
RULES 3.02 and 48.14
[49] As I am dealing with both the plaintiff’s motion to vary the timetable and extend the set down date, and the defendants’ motion to dismiss for delay, the appropriate starting point for this analysis is Rule 48.14.
[50] The Rule sets up a regime to ensure that actions are not left sitting indefinitely but that they move forward at an appropriate pace. The regime recognizes that not all actions can be dealt with in the same way, but provides a default timeline that can be adjusted on consent, and, in terms of an extended date for setting the action down for trial, by court order.
[51] When the current timetable order was made, the old regime applied, such that the default provision required a plaintiff to set the action down for trial within two years of the first defence having been filed. That regime has now been amended and the new default, in place since January 2015, requires that an action be set down for trial within 5 years of the action being commenced. Whether we are looking at Master Brott’s order or applying the new regime of a set down date 5 years after issuance, the plaintiffs are out of time.
[52] This is a factually unusual case. Although the plaintiffs request an extension, they do so more than two years after the action would have already been dismissed but for a registrar’s data entry error. They therefore cannot rely on the fact that this data entry was not done to explain their dilatory approach to complying with the order. As far as they were aware, they were required to set the action down for trial by the end of October 2013, failing which it would be dismissed. They consented to the order, were aware of its terms yet breached it.
[53] Having breached it, they have provided no evidence in their materials explaining why the action was not set down for trial as ordered or why no extension was sought earlier. In the absence of an explanation for having chosen neither route, I infer that that failure to take set the action down or to seek an extension over such a lengthy period of time was deliberate, likely the result of the plaintiffs’ inability to obtain a meaningful damage report. As I see it, they took advantage of this court error to artificially access additional time for this task.
[54] As a result, I do not see this as a Rule 3.02 motion, unless I factor in these circumstances to arrive at the order that is just under that Rule. In the context of the above scenario, I don’t believe it would appropriate or fair to the defendant to treat this motion as simply a request for an order extending the deadline for setting the action down for trial.
[55] If this was a motion to set aside a dismissal order, the four Reid factors would have to be considered, along with all relevant factors, as a contextual approach would be required to get to a just result. Whether I rely on Rule 3.02, or treat this as Rule 48.14(10) situation, the result will be the same. I am required, in either case, to make an order that is just to both parties in the context of the facts and all relevant circumstances.
[56] At the end of the day, the critical question to ask is whether a fair trial is still possible, or if the principles of finality and the defendant’s reliance on the security of its position should nonetheless prevail (see Wellwood v. Ontario Provincial Police, 2010 ONCA 386).
[57] Whether or not a fair trial remains possible turns, for the most part, on the issue of prejudice. As noted by the Court of Appeal in MDM Plastics Ltd., op sit:
The prejudice that the motion judge or master must consider is the defendant’s ability to defend the action that would [arise] from steps taken following dismissal, or which would result from restoration of the action following the registrar’s dismissal.
[58] This statement, however, does not displace a plaintiff’s onus to provide a reasonable explanation for the delay. If this entire regime now turned only on prejudice, all delay would effectively be condoned. A system that hopes to encourage proportionality, efficiency and a cost- effective approach cannot afford to ignore delay. As a result, delay, and whether the explanation provided for it is reasonable and acceptable, remains as part of the equation, and a factor to be considered in the mix.
DELAY
[59] This action was commenced by statement of claim issued in March 2010, and a notice of intent to defend was delivered later that month. At that time, the default deadline would have required that the action be set down for trial by March 2012 but that did not occur. The plaintiff was given notice that this deadline had been missed, such that they were required to either set the action down for trial or seek a status hearing within 90 days. They did neither and the action was dismissed by the registrar for delay.
[60] There is no evidence from the plaintiffs, either in support of their own motion or in response to the defendant’s motion to dismiss addressing this earlier delay. It therefore remains unclear why no extension was sought before the expiry of the first set down deadline and why no status hearing was requested after receipt of the Status Notice. This evidence is important in the context of the plaintiffs’ ability to demonstrate that it has always been their intention to proceed with this action, a critical factor for the court’s consideration.
[61] A motion to set the dismissal order aside came before Master Brott in November 2012. Her order, made on consent, extended the date by which the action had to be set down to October 31, 2013. Presumably some thought was given to that date at the time the plaintiffs’ consented to it. Yet, despite knowing that their financial records had been, in large part destroyed by then, it seems no steps were taken at that time (November 2012) to retain an expert to determine if it was possible to work around this challenge and, if so, to begin the process. There is also no indication that the defendant was alerted to the issue. It appears that the issue of damages was simply ignored.
[62] Although the master’s order was intended to set in play an automatic dismissal of the action by the registrar if the new set down deadline was missed, the system did not work and the action was not dismissed as it ought to have been. This is a court error. Regardless of that fact, counsel are expected to diarize these deadlines, particularly significant in this action, which had already been dismissed once for delay. There is no evidence before the court if that was done in this case, and if not, why not.
[63] These is no evidence before the court to explain why, once the new set down deadline had passed, the plaintiffs’ failed to seek an extension at that time and why they waited over two years before even mentioning their desire to do so.
[64] There is also no evidence before the court to explain why the plaintiffs were unable to set the action down for trial by the new set date established by the master’s order. Discoveries were complete and mediation had taken place. These are the steps which must be addressed before a plaintiff can certify that an action is ready to proceed to trial. There was no obvious impediment.
[65] It is not necessary to have all expert reports in hand, nor should the desire to return to mediation have impeded the necessary step of setting the action down for trial. All the plaintiffs had to have in place was a date for mediation, whereas here, they had actually completed the exercise, though not to their satisfaction. The parties could have set the action down, as required, before the expiry of the set down deadline and then returned to complete the mediation. The fact that this was not done raises unanswered questions and again leads to draw my own conclusions.
[66] There is also no evidence to explain why, on learning that the defendant would not consent to an extension, the plaintiffs still refrained from setting the action down for trial. As I see it, all the cards were in their hands as a result of a court error. At any time after scheduling the April 2013 mediation, they were free to set the action down for trial up to the hearing of this motion, but they failed to do so.
[67] The only evidence that comes close to addressing this, but only in part, is the difficulty getting an expert report. What was sought, the length of time it took and the end product must be examined. The plaintiffs were seeking a report to help them advance their claim for the $10 million of damages they say they sustained as a result of what took place in May 2009. They were aware that their financial records were, in large part, destroyed, in September 2009 and they began their action in March 2010.
[68] In that context, there should be but there is no evidence to explain why the plaintiffs waited until after mediation in April 2013 to first seek to prove their damages. Apparently, the expert they retained left the Benazzi firm and somehow, neither the plaintiffs nor the firm were aware that their matter had been left hanging until May 2014. Despite the delay caused by this situation, there appears to have been some hesitation on the part of the plaintiffs about continuing to go forward with this claim– though they were made aware of this situation in May, they waited until September 2014 to retain someone else from the same firm. This is also not explained.
[69] At that point, September 2014, one would have thought that the plaintiffs would have had a frank and open discussion with the expert and their accountant about the missing documents, in order to assess whether there was a way around the problem. There is no evidence to that effect. Instead, the evidence indicates materials were requested and some were produced, and that this process continued for a lengthy period of time.
[70] I have difficulty understanding how the plaintiffs continued their operations without seeking out at least some of these missing documents early on. To begin with, they say the documents were at the accountant’s office in response to a Retail Sales Tax audit. They never explain how they managed to deal with the audit in the face of the missing records. Presumably, enough of what was missing was reconstructed from other sources to satisfy the government.
[71] By the time this action was started, they could and should have already retrieved bank records, government retail tax records, financial statements, tax returns and notices of assessment, all of which was available from third parties other than their accountant. As a result it should not have taken long to pull these materials together. What was done and when it was done to get what was retrieved is nowhere to be found in the evidence.
[72] In the context of this factual matrix, it seems to me that the plaintiffs were reluctant to invest either their time or funds in this action without some assurance that they could succeed. Their desire was to go to mediation, without an expert’s report, and settle the case quickly. When that approach failed, they dragged their feet. They delayed from May to September 2013 in retaining a new expert on becoming aware that theirs had left the firm. They then took an inordinately long time to provide their accountant with documents, the vast majority of which we are told were consumed by the fire or damaged by the flood.
[73] In the absence of an explanation for the plaintiffs, the most plausible explanation that emerges from this saga is that the plaintiffs were not, at all times, committed to going forward with this action. They were waiting to see what the expert could do for them and when it was clear that it was not going to be what they hoped for, they tried to schedule a return to mediation – still without having secure an expert report.
[74] Within days of the expert producing a report that effectively said he doesn’t have the documents he needs to produce a meaningful document, he provides a second report, based on industry averages, a most unconventional approach, but one which could have been used at the outset.
[75] The expert does include a list of what they received and reviewed at the end of their first February 2016 report. The absence of bank records is surprising. As the action was started within ten months of the loss, documents for the entire relevant period of time could have been obtained had they been sought at that time. It is not clear that they were ever sought. “Bill of Sales” spreadsheets and a summary of advertising and promotion costs incurred by the plaintiffs in 2010 and 2011, prepared by management (“with supporting documentation”), were provided to the accountant but there is no indication what management relied on for these figures. The supporting documents they provided for the latter category of documents are not listed.
[76] In fact, at the end of the day, very little historical data appears to have been provided to and reviewed by the expert, and some of what they did receive was prepared by management. Why did it take so long to get these documents, particularly as it would have been clear to the expert, early on, that it was going to be impossible to show losses by relying on actual historical data when so much of that data was missing?
[77] In the meantime, month after month, the plaintiffs kept assuring the defendant that the report was coming next week or shortly, keeping them in the dark as to the nature of the problem until a significant period of time had elapsed. Again, this suggests that they were hoping to settle the action without having to provide an expert’s report or explain why they were unable to do so. Seeking $10 million worth of relief was not a wise start if that was the ending they foresaw.
[78] What is also of critical importance in this case as that, despite the lengthy passage of time, the plaintiffs are still not ready to proceed to trial. Up to the hearing of these motions, they could have set the action down for trial but they remain steadfast in their belief that to do so would be inappropriate as the action is not yet “ready”.
[79] After hearing counsel’s submissions on this point, it seems to me that the action is not yet ready for trial because the plaintiffs have further documentation pertaining to damages that they have chosen to withhold, pending the outcome of this motion. Though they refer to their intention to produce the documents in Mr. Karmazyn’s affidavit, he does not explain why they have taken this unusual position in the face of having to overcome serious hurdles on these motions.
[80] Further, the plaintiffs initially filed an inaccurate schedule “C” to their affidavit of documents, saying nothing about the missing documents destroyed by fire and flood. Though they come to court now, relying on the destruction of these documents as the cause of most of the delay, and despite the passage of more than six year, they have yet to amend their schedule “C” to reflect what they want to court to accept.
[81] I know of no juridical reason for not setting the action down for trial. To the extent that the action may not be ready for trial, it is because the plaintiffs have chosen not to produce the remainder of their damage documents or to amend their schedule “C”. Withholding either would have impaired their ability to set the action down for trial.
[82] When reviewing the evidence as a whole, I find that the explanation for the delay is not reasonable so therefore not acceptable. This is particularly problematic here, in the context of an action that has already been dismissed and would have been dismissed again, but for a court error.
[83] I find as well that the evidentiary record dealing with delay is deficient in that it ignores everything that transpired before mediation and between May and September 2014. I have noted repeatedly throughout these reasons where such evidence was expected but glaringly absent. As I have been given no explanation for that portion of the delay, I am unable to say the explanation is acceptable.
[84] It is the plaintiffs’ onus, where there has been delay, to establish that the delay was not intentional (see Berg v. Robbins [2009] OJ No. 6169). The gaps in the evidence suggest that the delay may well have been intentional.
[85] The length of time spent getting an expert report to address damages that has little to do with the plaintiffs’ actual historic financial picture is unexplained. Could it be that the plaintiffs were looking to their accountants, in whose hands their records were at the time they were destroyed, to come up with a viable solution to their problems? Was the delay caused by the accountants doing research, landing on this approach and waiting for plaintiffs’ counsel to review it and accept it before they committed to going forward? The fact that counsel kept the defendants’ in the dark for so long about this issue, all the while providing assurances about new timelines and materials coming shortly, appears to be part of a stalling tactic.
[86] Another factor that causes me to view this as deliberate foot dragging is the fact that the plaintiffs failed to seek this extension order for over two years after its expiry. It was only when the defendant started talking about moving to dismiss that their consent was sought for the extension. Yet again, the plaintiffs appear to have put off dealing with the case unless and until they had to, as their preference was to wait and see what the accountant could do for them.
[87] Finally, the fact that, even now, at this critical juncture, the plaintiffs are reluctant to throw more funds at this action by amending their affidavit of documents and serving the additional documents leads me to conclude that this is the most plausible explanation for what has been going on here for a lengthy period of time.
[88] Much of this evidence also leads me to conclude that, despite what Letichever says, the record does not support the conclusion that the plaintiffs always intended to proceed with this action. It seems to me that they always hoped to resolve the action on the basis of receiving some compensation, but their commitment to the action as a means for doing so was clearly wanting.
PREJUDICE
[89] The general approach of that prejudice is presumed where the applicable limitation period has passed, as it has here, but that presumption is easily rebutted by a plaintiff. As a result, the onus then moves to a defendant to show real prejudice.
[90] Prejudice must be caused by the delay and it must impair the defendant’s ability to secure access to a fair trial to be relevant in this analysis. Here, the defendant relies on:
The fact that the plaintiffs’ own expert concedes the available information does not allow them to quantify losses so that any expert retained by Trader would find it difficult to address the merits of this damage claim;
Witnesses have left their employ since 2009.
Documents
[91] The financial documents are may not be available for either side to rely on. As a result, the accountant had adopted an unorthodox approach to proving damages. It is an approach a trier of facts can decide to reject. It is certainly a report that can be attacked by a defence expert based on the facts that it is based more on industry standards than the plaintiffs’ own historic data and that the used auto industry is not even separately represented in the analysis.
[92] It would, in my view, be surprising if a trial judge was prepared to award anything approaching $10 million worth of damages on the strength of such a report. It was somewhat irresponsible for the plaintiffs to have asserted such a loss when they had no records to prove it, something they knew from the start. This may well have impacted on the response to the action, which appeared, on that basis, to have been a fairly significant one. That, of course, is an issue for costs.
[93] In the context of the current expert report that is relied on, I am not persuaded that the lack of damage documents is something the defendants can rely on as the basis for saying they can no longer get a fair trial. While the defendant cannot poke holes at the manner in which damages have been calculated by reviewing historical data, they can certainly make much of the approach taken to the issue.
[94] I am, however, concerned, and the plaintiffs conceded that, there are still further documents that they have but have not yet produced. I am also concerned that the plaintiffs may not have done all they could have, early on, to preserve documents, that now, in view of the passage of time, may no longer be available.
[95] I am also concerned about the fact that the plaintiffs fled a schedule “C” to their affidavit of documents that they knew to be false at the time it was sworn and that they have yet to correct it, all these years later. The end result is that the picture of what documents they actually have remains a murky one. Only they have this information, yet they have chosen not to share it with the defendant or with the court in a clear and comprehensive way.
[96] This, coupled with the failure to complete disclosure of what they have leads me to the inference that the plaintiff are playing games and are trying to settle the action without disclosing all they do have or could have obtained had they pursued the documents from third parties earlier. The only reason for taking this approach is that they believed certain documents kept under wraps or not sought would be harmful to their case. Instead, they are prepared to take their chances with a report that is more generic, and not based on their own numbers.
[97] To that extent, I do find prejudice caused by the delay. The plaintiffs have created a situation where we don’t know what it missing, whether they have it, or whether it is or is not still available. In the context of that scenario I cannot say that a fair trial can still be had. As this situation was caused by the plaintiffs, I hold them responsible for it and for the delay.
Witnesses
[98] As noted by the plaintiffs’ Mark O’Brien left the defendant’s employ in 2012, before the action was required to have been set down for trial. As a result, the fact that he is no longer employed by them, which might be prejudicial even if he can be summoned as a witness at trial, is not prejudice caused by the delay.
[99] The defendant has not named the other witness so I am unable to ascertain whether or not he is within Ontario and when he left their employ.
[100] On the basis of the above analysis, I find there is no evidence of actual prejudice, but only insofar as set out in paragraphs 94-97 above.
SUMMARY
[101] The court is required to undertake a balancing act of all relevant factors. I find that, in this case, there has been prejudice caused by delay and by considerable lack of candour. The importance of years of unexplained delay regarding production of an expert’s report cannot be minimized here. There are also other large tranches of unexplained delay. Even if I have found not prejudice, my findings regarding delay and lack of candour, in this unusual case, would have led me to conclude that no extension of the set down deadline should be granted here.
[102] Further, in my view, the delay here has been deliberate. The gaps in the evidence, the failure to alert the defendant to the missing documents and the delay in moving to extend the set down deadline to cure the breach of a court order are all unexplained. The fact that all of this was orchestrated with the effect of giving the plaintiffs time to come up with a plan regarding damages now appears to have been not simply the effect but the plan. I am therefore prepared to draw this inference as so much of the total picture is incomplete.
[103] The plaintiffs’ motion is therefore dismissed.
Defendant’s motion
RULE 60.12
[104] The other Rule that applies here is Rule 60.12, which allows a court to dismiss a party’s proceeding when they fail to comply with an interlocutory order, as occurred here. This was raised by the defendant in the context of their motion. While it is viewed as an extraordinary remedy, it is one the court will consider in clear cases.
[105] In Kohlsmith v. Sterling Mutuals Inc., 2014 ONSC 4696, Gorman J. applied the Rule by striking a statement of defence when it was the defendant who was in repeated breach. Before applying the Rule, his honour reviewed what the Court of Appeal had to say about breach of court orders in 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544, 2012 CarswellOnt 10154:
Time lines prescribed by the Rules of Civil Procedure or imposed by judicial orders 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 for a party to comply.
[106] Gorman J. found that there were no “unexpected and unusual contingencies” in the case before the court, and noted that the defendants had offered no excuse or explanation for the delay in that case. He also added that it was incumbent on him to consider the history of the case in its entirety, noting that in 1196158, supra, the Court of Appeal was clear when they stated that a status hearing does not absolve a plaintiff from having to explain all delay that accrued before it occurred. Instead, the status hearing should be seen as a “lifeline”, which in that case, was ignored.
[107] Similarly, in Sioux Lookout v. Goodfellow, 2015 ONCA 223, the Court of Appeal applied the Rule to uphold the dismissal of a defendant’s counterclaim where there had been failure to comply with a timetable order.
[108] As the Court stated, although Rule 48.14 does not contain an express provision dealing with the consequences of failure to comply with an order made at a status hearing, Rule 60.12 provides that where a party fails to comply with an interlocutory order, the court may dismiss that party’s proceeding. The Rule has therefore been applied very recently by the Court of Appeal to uphold the dismissal of a counterclaim.
[109] Turning to the case at bar, while I am able to say that the destruction of financial records can be considered to be an “unusual contingency, it is not possible to qualify this as a contingency that is “unexpected” as that was the state of the documents at the time the action was commenced. Despite knowing that a significant portion of their financial records had been destroyed, the plaintiffs started the action without addressing their problem, did nothing about it at all for more than three years into the life of the action and then told no one about the missing documents until December 2014, more than four and a half years after the action was started and more than a year and a half after mediation.
[110] Throughout that time, they kept the defendant at bay by indicating that the expert’ report was coming, when it was clear no report such as the court generally expects to see in these matters could be produced. To exacerbate matters, though they have further documents, they have not produced them. Finally, they have served an affidavit of documents that is clearly not accurate as regards schedule “C”, yet have taken no steps to this day to correct it.
[111] This appears to be a case of intentional non-disclosure in the context of the breach of a significant court order made in the context of reviving an action. The action was commenced in March 2010 and in February 2016, almost six years later, the expert report finally served a report in support of a $10 million action that is based on a handful of documents, some of which were produced by management, and industry standards. Those standards do not even include the used car trade.
[112] Further, the cause for the delay relied on – the missing records –makes no sense in the context of the report ultimately prepared, which takes an entirely different approach, essentially relying on industry standards rather than the plaintiffs’ financial history. As it was always clear that only a handful of financial records were available, I see no reason why this kind of report could not have been provided years ago and no evidence has been tendered to explain that.
[113] To exacerbate matters, the evidence filed to explain most of the delay is noticeably absent. In short, the plaintiffs were granted a “lifeline” at Status Hearing court and given an extension by which the action was to have been set down for trial. But for a court error, this action would have been dismissed more than two years before the plaintiffs’ motion was brought. That would have been the second dismissal, thus requiring a fulsome record to explain all of the delay from the start.
[114] In view of all of the foregoing, I find that that there is no unexpected contingency that has arisen here to excuse the breach of court order and ongoing delay. On the basis of Rule 60.12, I dismiss this action.
RULE 24.01
[115] To dismiss under this Rule, the court must find that the default is intentional and contumelious or that the plaintiff or his lawyers are responsible for inexcusable delay that gives rise to a substantial risk that a fair trial might not now be possible.
[116] I have already found that that there is a risk that a fair trial is no longer available. I have also found that the delay has been intentional. The issue that remains is whether it was also contumelious. Contumelious is defined in the Merriam-Webster Dictionary as insolently abusive and humiliating. The Webster Dictionary defines it as scornful and insulting; insolent. I found no results for the word in Black’s Law Dictionary.
[117] Both of the two definitions I did find suggest that this is an odd word to use to describe delay in the context of a legal proceeding. There seems to be some suggestion that it is the quality of the delay rather than its length that the court should be focusing on; that there is something about the reason for the delay or how the party accused of it went about it that is questionable.
[118] As I have already noted, the delay in this case, appears to have been a subterfuge to give the plaintiffs time to figure out if, and if so how, to get around the fact that most of their damage documentation had been destroyed even before they began this action. The fact that the damage documents were long gone was not revealed until well after the completion of discoveries and mediation, and after having provided repeated assurances that the work was being done and the product would be provided soon.
[119] In my view, this conduct that led to delay led to delay, delay that may well have impeded the plaintiffs’ ability to get their hands on some of the missing documents. I say “may” as the plaintiffs’ failure to provide all that they do have makes it impossible to assess whether they have amassed everything they could have accessed had they done so earlier. This doubt, created by the plaintiffs, should not now inure to their benefit.
[120] In my view, the approach described above can be characterized as contumelious.
[121] I therefore conclude that the delay here was both intentional and contumelious, giving rise to a real risk that the defendant can no longer get a fair trial. As a result, the action should be dismissed under this Rule, as well.
[122] The defendant’s motion is therefore granted.
[123] If the parties are unable to agree as to costs I can be spoken to.
__(original signed) _
Master Joan M. Haberman
Released: May 10, 2016