Court File and Parties

Court File No.: CV-10-413163 Motion Heard: 2016-07-06 Superior Court of Justice - Ontario

Re: TERRACE BAY PULP INC., Plaintiff And: R.N.F. TECH SYSTEMS LTD. and KMH ENGINEERING INC., Defendants And: KMH ENGINEERING INC., HYDRO ONE INC., and HYDRO ONE NETWORKS INC., Third Parties And: ABB INC., Fourth Party

Before: Master Lou Ann M. Pope

Counsel: David Liblong, Liblong Digambar, Professional Corporation, for the Plaintiff Muriel Moscovich, Dentons Canada LLP, for the Third Party David M. Golden, Torkin Manes LLP, for the Defendant, KMH Engineering Inc. David S. Young, Benson Percival Brown, for the Defendant, R.N.F. Tech Systems Ltd.

Reasons for Endorsement

[1] The plaintiff seeks an order to set aside the registrar’s order dismissing this action for delay dated December 8, 2015 made pursuant to rule 48.14(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended (“Rules”). Although not set out in the notice of motion, this motion is brought pursuant to rule 37.14 of the Rules.

[2] This action involves third and fourth party claims where those parties defended the action brought against them as well as the main action.

[3] This action has been dismissed for delay twice, the first time on August 25, 2014. That dismissal order was set aside on December 8, 2014 and a new timetable required that the action be set down for trial by November 15, 2015. As the action had not been set down by that deadline, it was dismissed again on December 8, 2015. This is the order that gives rise to this motion.

[4] Only the fourth party, ABB Inc., opposes this motion although counsel for the defendants made submissions at the conclusion of the hearing regarding a timetable for the balance of the steps in this action if this motion is granted.

Background and Procedural History

[5] In 2007, the plaintiff entered into a contract with Great West Timber Limited (“Great West”) to acquire a steam turbine generator. Significant modifications were required to the electrical distribution system at the mill in order to mobilize the new generator. To do so, Great West retained numerous subcontractors including R.N.F. Tech Systems Ltd. (“RNF”), an electrical contractor, to perform changes or additions to the electrical system. In addition, Great West retained the defendant, KMH Engineering Inc. (“KMH”), to act as project engineer to oversee the installation of the generator at the mill. On October 29, 2008, in an attempt to shut down the generator a failure occurred which caused significant damages and/or losses as claimed by the plaintiff.

[6] The main action was commenced on October 28, 2010 by the plaintiff’s insurer to enforce its subrogation rights against RNF. The statement of claim was amended to add KMH as a defendant. However, before KMH was added, RNF had issued a third party claim against KMH, Hydro One Inc. and Hydro One Networks for contribution and indemnity. Subsequently, RNF’s statement of defence was amended which included a crossclaim against KMH for contribution and indemnity. In turn, KMH defended the action and crossclaimed against RNF. KMH issued a fourth party claim against ABB Inc. (“ABB”) for contribution and indemnity based on claims of negligence and breach of contract in ABB’s role as commissioning agent related to the start-up of the new steam turbine generator.

[7] The third and fourth parties defended the main action and the respective actions brought against them. By late-January 2014, pleadings in all actions were closed.

[8] A status hearing in the main action was held pursuant to rule 48.14, in writing and on consent, on August 19, 2013 wherein Master Glustein, as he then was, ordered a timetable for completion of examinations for discovery, motions for undertakings, mediation and for the action to be set down for trial by any party by August 22, 2014.

[9] According to the status hearing order, discoveries were to be completed by February 28, 2014. All parties consented to the scheduling of joint discoveries from February 4 to 7, 2014 in Thunder Bay, Ontario and to deliver affidavits of documents with Schedule “A” productions by December 31, 2013.

[10] In December 2013, counsel for the defendants, Hydro One Inc. and Hydro One Networks Inc. (“Hydro One” collectively) advised that its productions would not be delivered until January 2014, which was the same time their defences to the main action and the third party claim were delivered.

[11] In mid-January 2014, counsel for Hydro One requested that discoveries, which were scheduled in early February, 2014, be rescheduled given the recent involvement of those third parties. Hydro One counsel also expressed concern about complying with the timelines set out in the status hearing order if discoveries were rescheduled and the need to obtain an order amending the timetable.

[12] The parties attempted to reschedule the discoveries in July 2014 without success. The parties had also delivered their affidavits of documents throughout 2014.

[13] In early March 2014, the plaintiff delivered a status hearing request form requesting a status hearing in the main action. It does not appear that a status hearing was ever held further to this request.

[14] The registrar issued an order dated August 25, 2014 dismissing the main action for delay as it had not been set down for trial by August 22, 2014 as ordered in the status hearing order. On consent of all parties to set aside the dismissal order and a timetable for completion of the steps in the actions, Master Haberman granted the order on December 8, 2014. The timetable included timelines for delivery of sworn affidavits of documents, discoveries, undertakings motions, delivery of expert reports, set the action down for trial by November 15, 2015 and mediation by January 31, 2016. However, Master Haberman amended the timetable whereby she required that mediation be completed before the action was set down for trial without extending the date by which the action was to be set down for trial.

[15] Discoveries were ultimately rescheduled to May 4 to 8, 2015 due to RNF’s request that the plaintiff produce relevant documents not included in its affidavit of documents. The plaintiff had difficulty obtaining certain relevant documents as a result of it having filed for protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c.C-36 (“CCAA”) in March 2009 and again on January 25, 2012 and the property and assets of the plaintiff having been sold to AV Terrace Bay Inc. (“AVTB”) in July 2012. Therefore, the plaintiff had to communicate with AVTB to obtain the requested documents without success. AVTB was not prepared to undertake the enormous task without compensation. Ultimately in August 2014, the plaintiff’s insurer approved a $10,000 budget for AVTB to conduct a search and to locate and produce any further relevant documents.

[16] Examinations for discovery of all parties did in fact take place from May 4 – 8, 2015 in Thunder Bay, Ontario.

[17] On June 17, 2015, plaintiff’s counsel inquired as to whether opposing counsel intended to bring any motions or take any steps that would delay scheduling mediation. At that same time, counsel for Hydro One confirmed that the third party action against them was going to be dismissed and an order was being obtained. Also in June 2015, RNF requested consent of all parties to transfer the main action from Toronto to Thunder Bay.

[18] On August 26, 2015, plaintiff’s counsel wrote to opposing counsel and advised that the plaintiff would make best efforts to answer all undertakings before mediation and that he was seeking instructions to transfer the action to Thunder Bay. Plaintiff’s counsel also requested for a second time that opposing counsel advise her whether they intended to bring any motions in order to schedule mediation.

[19] RNF refused to go to mediation as advised in late October 2015 taking the position that based on facts that were uncovered during discoveries, RNF was not responsible for the plaintiff’s loss.

[20] It is evident from the correspondence among counsel that they were cognizant of the fact that mediation was not mandatory under the Rules in Thunder Bay; however, the timeline to set the action down for trial was quickly approaching and none of the parties had confirmed its consent to transfer the actions.

[21] Mediation had not taken place and the action had not set down for trial by November 15, 2015 as ordered by Master Haberman on December 8, 2014. Therefore, the registrar issued a second dismissal order on December 8, 2015 which plaintiff’s counsel received on or about December 15, 2015.

[22] Between August and October 2015, steps were taken to consent and obtain an order dismissing the action against Hydro One. The order was granted on February 29, 2016.

[23] Plaintiff’s counsel communicated with opposing counsel immediately after receipt of the dismissal order regarding their consent to set aside the order. In addition she indicated her willingness to recommend to the plaintiff that the action be transferred to Thunder Bay. Plaintiff’s counsel filed a requisition to schedule a long motion with the court on December 18, 2015. Subsequently, the request was approved which was followed by plaintiff counsel’s request for a case conference to schedule the motion and set a timetable for delivery of material.

[24] Immediately after receipt of the dismissal order, plaintiff’s counsel informed FM, the plaintiff’s insurer, that the action had been dismissed for delay.

[25] This motion was ultimately heard on July 6, 2016.

This Motion

[26] As stated above, only ABB opposes this motion. ABB filed no evidence. It filed a factum, brief of authorities and the transcript of the examinations for discovery.

[27] The plaintiff raised an issue with respect to the admissibility or propriety of paragraphs 3, 5, 6 and the chronology of events located at Schedule “A” of ABB’s factum as it filed no evidence. ABB submits that as stated in paragraph 3 of its factum, the chronology of events is based on the “motion material, pleadings, and discovery transcripts”.

[28] In order to rule on this issue, it is necessary to refer to the relevant rules. Rule 37.10(3) permits a responding party to deliver a responding party’s motion record where it is of the opinion that the motion record is incomplete. Subrules (a) and (b) set out the contents of the responding motion record which includes a copy of “any material to be used by the responding party on the motion and not included in the motion record”. Further, subrule (6) provides that a party may serve on every other party a factum consisting of a “concise argument stating the facts and law relied on by the party”. Subrule (5) provides that a party who intends to refer to a transcript of evidence at the hearing of a motion shall file a copy of the transcript as provided by rule 34.18.

[29] With respect to the chronology of events in ABB’s factum, for the following reasons, it is my view that ABB complied with the rules with one exception. Firstly, the chronology contains a statement of the facts in chronological form. Subrule (6) permits a party to set out the facts of the case in a factum. The fact that they are set out in chronological style rather than in paragraphs is irrelevant. In that respect, I find that the chronology is properly filed. Secondly, several of the items listed are based on evidence given by the representatives of the plaintiff and ABB at examinations for discovery. Subrule (5) permits a party who intends to refer to a transcript of evidence at the hearing of the motion to file a copy of the transcript. Clearly, ABB intended to refer to the transcripts of evidence at this hearing; therefore, it filed a copy of the transcripts. Therefore, having regard to subrule (5), I find that it was unnecessary for ABB to have delivered an affidavit attaching a copy of the transcripts. However, there is one event listed under November 1, 2008 where a copy of the transcript of the evidence given at discovery of the KMH witness, Mr. Harkinin, was not filed for this motion. In that respect, the entry of the November 1, 2008 event is not properly before this court and it will not be considered. I find that the balance of the events listed in the chronology are properly before this court as they are based on the material filed on this motion including the pleadings and discovery transcripts.

[30] Turning to paragraphs 3, 5 and 6 of ABB’s factum, I also find that these paragraphs are properly before this court because the facts set out therein are based on the pleadings and discovery transcripts. In that respect, and having regard to subrules (5) and (6), it was not necessary for ABB to deliver an affidavit that attached the particular pleading and transcript. However, the only criticism I have is that paragraphs 5 and 6 ought to have contained references to the pages and questions in the transcripts where the evidence is located. Given that the plaintiff did not object to the accuracy of any of the facts or evidence set out in paragraphs 3, 5 and 6, the missing references do not render paragraphs 5 and 6 to be improperly filed.

Law

[31] Subrule 48.14(10) provides that an order made under that rule may be set aside under rule 37.14.

[32] Rule 37.14(1) provides that a party who is affected by an order of a registrar may move to set aside the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion. The court has discretion to set aside the order on such terms as are just. (subrule (2))

[33] The plaintiff has the onus to satisfy the court that this action should be permitted to proceed.

[34] In considering whether the dismissal order should be set aside, the court will consider the following four factors while taking a contextual approach in order to achieve a result that is just in all the circumstances. It is not necessary for the plaintiffs to satisfy each of the four factors in order to have the order set aside. (Reid v. Dow Corning Corp. (2001), 11 C.P.C. (5th) 80 (Ont. Master), Finlay v. Van Paassen, 2010 ONCA 204, 2010 CarswellOnt 1543 (C.A.), at paras 27-29; Wellwood v. Ontario Provincial Police, 2010 ONCA 386; Habib v. Mucaj, 2012 ONCA 880, [2012] O.J. No. 5946 (C.A.))

a. Explanation for the litigation delay; b. Inadvertence in missing the deadline; c. Promptness in bringing the motion to set aside; d. Prejudice to the defendants.

[35] In Ross v. Hertz Canada, 2013 ONSC 1797, Master Dash provided the following summary of the guiding principles:

• A plaintiff need not satisfy all four of the Reid factors but rather a contextual approach is required;
• The key point 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 defendant 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; and,
• 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

[36] ABB takes no issue with factors two and three being inadvertence in missing the deadline and promptness in bringing this motion.

[37] I will now address the remaining two Reid factors that ABB submits the plaintiff has not satisfied.

Explanation for the Litigation Delay

[38] The following are the salient steps in this action. The loss occurred on October 29, 2008. This action was commenced on October 28, 2010. Pleadings were closed in the main action by late November 2011. The Third Party Claim was issued on August 7, 2012 and the Fourth Party Claim was issued on June 19, 2013. Pleadings were closed in the third and fourth party actions by the end of January 2014.

[39] The first dismissal order was made on August 25, 2014 following a status hearing order made on August 19, 2013, which included a timetable. The first dismissal order was set aside by order dated December 8, 2014, on consent of all parties, which included a timetable that required the action be set down for trial by November 15, 2015. Examinations for discovery of all parties were held in May 2015 in Thunder Bay, Ontario. When the action was not set down for trial by November 15, 2015, the registrar issued a second dismissal order on December 8, 2015. Therefore, by the time of the second dismissal order on December 8, 2015, this action had been ongoing for just over five years.

[40] ABB submits that the plaintiff failed to explain the delay from October 28, 2010 when the action was commenced until August 7, 2012 when the third party claim was issued. With respect, the statement of defence of RNF was not delivered until more than a year later on November 18, 2011. It must be assumed that the parties consented to a waiver of delivery of a defence under the rules. Further, it was only nine months after RNF’s defence was delivered that it issued a third party claim against KMH and Hydro. Some four months after the third party claim was issued, the plaintiff amended the statement of claim to add KMH as a defendant. Although there is no evidence regarding steps taken by the plaintiff for those nine months, it is reasonable to conclude that counsel for the plaintiff and RNF had discussions regarding ensuring all necessary parties were added to the action which resulted in the third party claim and the amended statement of claim. It is also reasonable to conclude in my view that had plaintiff’s counsel sought to schedule examinations for discovery immediately after RNF delivered its defence, RNF would have refused to do so on the basis that it was considering issuing a third party claim. It is also reasonable to conclude, in my view, that had plaintiff’s counsel sought to schedule discoveries any time before pleadings were closed in late January 2014, none of the parties would have agreed to do so until pleadings were closed. However, as it turned out, plaintiff’s counsel was able to schedule discoveries before the close of pleadings in January 2014, which were scheduled for February 4 to 7, 2014. The discoveries had to be delayed given Hydro One’s late involvement in the action and RNF’s request for further productions from the plaintiff. In conclusion, in my view, it was not necessary for the plaintiff to explain the obvious delay due to the extensive pleadings which alone address the issue of delay in this action of some three years and three months.

[41] The plaintiff admits to delay caused by its difficulty obtaining relevant documents given that the plaintiff had filed twice for and obtained protection under the CCAA in March 2009 and January 2012, as well as the sale of the plaintiff’s assets in July 2012 to a non-party.

[42] ABB contends that the plaintiff has not explained why it was unable to collect all relevant documents up to the time of the sale in July 2012 given that the action had been commenced on October 28, 2010. This is a valid point which, I find, was not explained by the plaintiff.

[43] I find that the plaintiff has adequately explained the litigation delay from October 28, 2010 to the date of the dismissal order on December 8, 2015. The plaintiff is not required to explain every period of time of inactivity or delay. I accept that it was imperative that all necessary parties be added to this action before it could proceed. This is especially so as the third and fourth parties defended the main action and not merely the action commenced against them. For that reason, the actions had to proceed together including global discoveries that involved five counsel and five, possibly six, parties, in Thunder Bay, Ontario where none of counsels’ offices were located. I accept that this factor alone causes delay.

[44] The first dismissal order of August 25, 2014 was made only seven months after the close of pleadings. It is obvious that the status hearing order dated August 15, 2013 was made prior to defences being delivered by ABB and Hydro One, which took place from September 6, 2013 to January 15, 2014. As such, it is obvious that the timetable contained in the status hearing order was not realistic.

[45] In addition, I find that the plaintiff has adequately explained the reason for and the delay in obtaining relevant records from AVTB; however, as noted above, it has not explained the reason for being unable to obtain those documents prior to the sale of the business.

[46] I further find that the plaintiff was active throughout the action in taking steps to move the action ahead until the end of August 2015 after plaintiff’s counsel wrote to opposing counsel and advised that the plaintiff was attempting to answer its undertakings, it was seeking instructions to transfer the action to Thunder Bay, and inquired a second time whether any party anticipated bringing a motion in order to schedule mediation. None of the opposing parties answered the inquiry regarding anticipated motions. Counsel for RNF’s silence on this point is explained months later in October 2015 when he advised that his client was taking the position that RNF was not responsible for the plaintiff’s loss given the facts obtained on discovery and thus it was not prepared to go to mediation. This position was naturally troubling for the other parties as mediation was a mandatory step in Toronto where the action was commenced. Counsel for RNF did not indicate that he would bring a motion to be exempted from mediation; rather, he inquired months earlier in June 2015 whether the parties would consent to transferring the action to Thunder Bay. Counsel were well aware that mediation was not a mandatory step for actions in Thunder Bay. Therefore, at the end of August 2015 when plaintiff’s counsel wrote to opposing counsel regarding scheduling mediation, and less than three months before the action had to be set down for trial on November 15, 2015, plaintiff’s counsel was faced with a party who refused to mediate and a proposal to transfer the action to Thunder Bay, where no party had indicated its position on either issue.

[47] There is no evidence that the plaintiff took any steps to advance the action after plaintiff counsel’s letter of August 26, 2015 until the action was dismissed on December 8, 2015. I find for the above reasons that the plaintiff has adequately explained the delay for that period.

[48] In conclusion on this factor, and for the above reasons, I find that the plaintiff has adequately explained the delay in the litigation.

Prejudice

[49] The plaintiff submits that there will be no prejudice to ABB if the action is allowed to proceed as discoveries have been held, the evidence of the parties have been recorded and all parties have delivered affidavits of documents.

[50] The plaintiff further submits that ABB did not oppose the setting aside of the first dismissal order made on August 25, 2014 and no prejudice has arisen since then. In fact, the plaintiff contends that ABB is in a better position today than it was on August 25, 2014 given that discoveries have been held and the evidence recorded.

[51] ABB submits that it will suffer prejudice if the dismissal order is set aside due to the passage of time, in particular, that memories of witnesses have faded and the passage of an inordinate length of time after the cause of action arose in October 2008.

[52] There is no automatic presumption of prejudice with the passage of time or the limitation period. Prejudice to a defendant may be presumed, particularly if a lengthy period of time has passed since the dismissal order was made or the limitation period has expired. This is to be determined by the court taking a contextual approach to all of the facts. 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. (Ross v. Hertz Canada)

[53] Where the presumption arises, the plaintiff bears the burden of rebutting the presumption, on proper evidence. Where the presumption is so displaced, the onus shifts to the defendant to establish actual prejudice. The plaintiff can overcome the presumption by leading evidence that all relevant documents have been preserved, that key witnesses are available or that certain aspects of the claim are not in issue. (Wellwood v. Ontario Provincial Police, 2010 ONCA 386, at paras. 60, 62)

[54] I find on the evidence that no presumption of prejudice has arisen in this action. For the above reasons, I find that the plaintiff has demonstrated that ABB will suffer no prejudice if this action proceeds. In addition, I find that there is no basis upon which to conclude that ABB will be prejudiced if this action were allowed to continue. The dismissal order was made on December 8, 2015. Prior to and up to that time, ABB had not claimed prejudice by, for example, having brought a motion to dismiss the action for delay under rule 24. In fact, ABB was actively involved in defending the action. Further, given that ABB adduced no evidence of actual prejudice, which was open to them, I find there will be no actual prejudice to ABB.

[55] In conclusion on this factor and for the above reasons, I find that there will be no prejudice to ABB if this action is allowed to proceed.

Additional Factors

[56] It is important to note that the applicable Rules regarding administrative dismissals were amended effective January 1, 2015 whereby former Rules 48.14 and 48.15 were revoked and replaced with the current Rule 48.14.

[57] These recent amendments to rule 48.14 may be a relevant factor on a motion to set aside a dismissal order for delay. Actions commenced on or after January 1, 2015 will now be dismissed for delay by the registrar five years after the date of commencement. Applying that rule to this action had it been commenced after January 1, 2015, this action would have been dismissed for delay if it had not been set down for trial by October 28, 2015. The second dismissal order in this action was made on December 8, 2015, approximately six weeks after the date it would have been dismissed for the first time had the amended rule applied to this action. In this respect, it is my view that the amendments to rule 48.14 are a relevant factor on this motion in that the first dismissal order was obviously made within the new five-year timeline, and the second dismissal order was made very shortly after the expiry of the new timeline. Had the new rule applied to this action, the plaintiff would find itself having to explain, for the first time, the delay which is less egregious than having to now explain two dismissal orders. For those reasons, it is my view that the amendment to rule 48.14 favours the plaintiff.

Conclusion

[58] For the reasons above, I find that the plaintiff has adequately explained the four Reid factors. Having taken a contextual approach to the issues on this motion, I exercise my discretion under rule 37.14(2) to set aside the registrar’s dismissal order made on December 8, 2015. The following timetable for the balance of the steps in this action has been agreed to by all parties:

1. All parties shall answer undertakings by August 30, 2016;
2. RNF shall bring a motion to transfer this action to Thunder Bay by August 30, 2016; (all parties consent to the transfer except ABB; Ms. Moscovich is seeking instructions at this time) Hearing of any motions for undertakings or refusals shall be held by October 31, 2016;
3. Mediation shall be held by November 30, 2016 in Toronto if the actions are not transferred to Thunder Bay. If they are transferred to Thunder Bay, mediation is not required, but optional;
4. This action and the third and fourth party actions shall be set down for trial by December 20, 2016 (in Toronto or Thunder Bay depending on the outcome of the transfer motion).

Costs

[59] Given its success on this motion, the plaintiff shall be entitled to its partial indemnity costs. This motion was not complicated. The case law has been settled for some time and the majority of the cases filed were the typical ones filed on a motion to set aside a dismissal order. In fact, many of the cases were not referred to in submissions. Further, cross-examinations were not held and as ABB filed no evidence that required reply by the plaintiff, in my view, it is fair and reasonable to fix costs in the amount of $7,500 payable within 30 days.

(original signed) Master Lou Ann M. Pope July 7, 2016