Court File and Parties

COURT FILE NOS.: 08-40772, 08-40773, 08-40774 MOTION HEARD: 2016/12/01

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2811472 CANADA INC. v. HER MAJESTY THE QUEEN IN RIGHT OF CANADA et al

BEFORE: Master Champagne

COUNSEL: Daniel Z. Naymark, for the Plaintiffs (moving parties) Andrew Cameron, for the Defendant (responding party)

REASONS FOR DECISION

[1] This motion arises out of litigation between 2811472 Canada Inc. carrying business as Acorn Partners (“Acorn”) and the Queen in Right of Canada (the “Crown”).

[2] The moving parties, who are not parties to the action, seek to set aside the registrar’s dismissal of three actions, namely, CV-08-40722, CV-08-40723, and CV-08-40724 between Acorn and the Crown.

Background

[3] The facts of this matter are largely not in dispute.

[4] Acorn, a now bankrupt factoring company, was in the business of purchasing invoices at a discounted rate. Edward Maeder (“Maeder”) and Richard Reynolds were funders of Acorn. Richard Reynolds III (“Reynolds”) is the administrator of Richard Reynold’s estate. They are the moving parties in this motion.

[5] In 2008, while still in business, Acorn purchased invoices from a construction company, 6364144 Canada Inc., who carried on business as ICI Construction Management (“ICI”). ICI had been retained to perform three construction projects worth over seven million dollars ($7,000,000.00) for the Government of Canada. In January 2008, after Acorn purchased ICI’s invoices, ICI’s principle, Rolland Eid, abruptly left Canada and ICI ceased operations. Its creditors petitioned it into bankruptcy. These events occurred prior to the completion of the projects. The Crown retained other contractors to complete the unfinished work and refused to pay any of ICI’s outstanding invoices. Acorn sued the Crown for payment of those invoices.

[6] The Crown defended the action saying it was entitled to set off the costs of completing the uncompleted construction projects left behind by ICI.

[7] These actions were commenced in February 2008 and were defending in the spring of the same year. Productions and pleadings were exchanged in the spring and summer of 2008, and the parties attended mediation by October 2008. At that point, the issue of the Crown’s entitlement to set-off could not be determined because the project completion costs were not yet known given that the projects were still ongoing.

[8] In May 2011, the registrar issued a notice requiring the action is to be set down within two years. Master MacLeod (as he then was) ordered a timetable on August 8, 2011. That timetable was not met and was extended by Master Roger (as he then was) on August 12, 2012.

[9] Meanwhile, Maeder and Reynolds sued Acorn for the funds they advanced to it. They were granted judgment of more than seven hundred thousand dollars ($700,000.00) in November 2011. Acorn appealed and the appeal was dismissed.

[10] On August 29, 2012, Acorn filed a notice of stay of proceedings and a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”).

[11] On December 7, 2012, a meeting took place between Acorn and the Crown to quantify their respective claims on a without-prejudice basis. The following month, on January 23, 2013, Acorn filed an assignment in bankruptcy.

[12] Maeder and Reynolds were assigned to be the inspectors of Acorn’s estate in the bankruptcy. They retained Daniel Naymark (“Naymark”) to deal with, among other things, the pursuit of the litigation between Acorn and the Crown.

[13] On August 12, 2013, the three actions between Acorn and the Crown were dismissed by the registrar for delay. It is those dismissals that are at the heart of this motion.

[14] The communication between the Crown’s lawyer, Sharon Johnson (“Johnson”), and Naymark between August 2013 and November 2015 is central to this motion. Relevant excerpts of those communications follow.

[15] On July 26, 2013, Naymark emailed Johnson asking her for the Crown’s assessment of the set-off it felt it was owed.

[16] On August 4, 2013, he followed up with another email:

Sharon,

Following up on this. I understand there is an administrative deadline coming up at the end of next week and would really like to address this point before then as my sense is that this dispute can be stripped down to a mathematical exercise rather than a legal one. If it will take you some time, perhaps we can simply agree to set aside a dismissal on consent should one take place, and not to count the time during which we are talking as delay in so moving.

Thanks,

Daniel

[17] On August 6, 2013 Johnson responded:

Hi Daniel

I am just waiting to hear back from my client to get some numbers. In the meantime, I am somewhat confused by your email below. I am not aware of any dismissal - are you referring to a dismissal of the Acorn actions by the court for delay? Also, I would like some further information from you regarding the Bankruptcy of Acorn Partners. Is there a bankruptcy order?

If so, can I have a copy? Also, who is the trustee and what is their position about the actions by Acorn against the Crown?

Thanks.

[18] On August 6, 2013, the same day Naymark responds:

Thanks Sharon. I can appreciate there must be a fair bit for you to get up to speed on.

In terms of the dismissal I was referring to, I understand from the law firm that has been representing Acorn in the actions that there is a deadline for their being set down for trial by August 9 th , failing which I presume it will be dismissed for delay. I believe this is pursuant to a timetable order.

Since that timetable was put in place, it seems there has been some disruption on both sides, particularly Acorn’s. Acorn filed an assignment under the BIA at the end of January (see attached notice and certificate of appointment of Surgeson Carson as trustee in bankruptcy). My clients are the (only) inspectors in the bankruptcy and are in the process of assessing the various estate assets, including the actions against the federal government. It seems like there was some confusion in parallel to all this whereby Acorn’s lawyers believed that Mr. Kaufman was assembling some government documents for production without realizing he was on paternity leave, which I discovered the other week when I tried to contact him and was passed on to you.

So that’s the context for my reaching out.

[19] On August 8, 2013 Johnson responded by email with confirmation that the matter was to be set down for trial by August 9, 2013. She wrote:

…I am wondering whether we can just file a basket motion amending it again on consent – the issue is whether you are able to consent as opposed to Acorn and its lawyer of record. Actually, on second thought I would think it would have to be the trustee, and some court order to have them assume the litigation would probably be necessary but, forgive me, I am not that familiar with the rules of bankruptcy.

Alternatively, I am amenable with what you suggested, which is agree to set aside any dismissal on consent that may occur while we are trying to sort this out….

[20] On that same day, Naymark responds by email:

…As for process, strictly speaking we should probably get an order assigning the actions to the trustee. In the interest of time, if I can oblige you to prepare (very basic) motion materials for an extension, I am sure the trustee will sign a consent on Acorn’s behalf and expect the court would be satisfied with that. At a minimum, submitting the materials over the counter should forestall a dismissal. Although tomorrow is technically the deadline I expect we’ll get a bit of a grace period before any dismissal actually comes through. If you don’t have the time or inclination to do that, I’m content to simply agree to set aside a dismissal if and when we decide that without prejudice discussions are no longer fruitful….

[21] To that, on the same day August 8, 2013, Johnson responds:

Hi Daniel,

I reviewed the Rules and it seems that pursuant to Rule 11.01 of the RCP, the proceeding shall be stayed until an order to continue pursuant to Rule 11.02 has been obtained. So it seems to me that the 3 proceedings would all have been automatically stayed as of January 23. 2013 – the date of the appointment of the trustee.

I think the next step falls to the trustee to obtain an order to continue under R. 11.02. Once I have been served with that, pursuant to Rule 3.04(1) the parties can simply, by written agreement agree to amend a timetable established by order of a judge or case management master- no court order necessary…

Sharon

[22] The court dismissed the three actions for delay which gave rise to an email from Johnson to Naymark on August 13, 2013:

Hi Daniel

Well the court wasted no time on dismissing the three Acorn actions for delay. I will send you the orders.

As we discussed before, the action is automatically stayed by operation of Rule 11.02. so I would think that once the trustee files the orders to continue, these orders dismissing would also be stayed.

[23] On November 8, 2013, Johnson sent Naymark an email:

Good morning Daniel,

I am just following up on our last email exchange below. Have you received any instructions with respect to these matters?

Regards,

[24] Naymark responded on November 10, 2013:

Sharon,

The hold-up has been a result of the fact that in the context of the current bankruptcy, there are a number of stakeholders that need to be consulted. That process is underway and we hope to have it concluded by year end, at which point I will get back to you with something more substantive.

Thank you for your patience thus far…

[25] On March 6, 2014 Naymark followed up as follows:

Sharon,

I am writing to check in and provide an update lest you think we have forgotten about this matter. The internal process has taken longer than anticipated but has made some progress and I am hopeful that we will be through it by month’s end. I am happy to talk if you would like more details or have any concerns that I can address.

Regards,

[26] It is not disputed that Johnson did not respond to those last two communications.

[27] Maeder’s evidence is that, in 2014, the trustee made some effort to recover Acorn’s assets itself and, by November 2014, it decided against pursuing Acorn’s actions against the Crown. There is no evidence as to what if any contact the trustee had with the Crown. On November 12, 2014, Maeder and Reynolds sought an assignment to carry on with the litigation given their interest in the matter. On December 17 2014, Justice Kershman granted Maeder and Reynolds the assignment under section 38 of the BIA. Following the assignment, Maeder and Reynolds did a number of things within the bankruptcy. In January 2015, they spoke with a number of creditors; and between May and August 2015, they made efforts to obtain the Acorn file from Beament Green. The evidence from the exchange of correspondence between Naymark and Beament Green suggests that the transfer of the file was not amicable or easy. Naymark sent Beament Green letters May 19, 2015 and June 4, 2015 seeking a transfer of the Acorn litigation file to him. On June 8, 2015, Michael Hebert indicated that it would take some time to copy the files. Some further correspondence was exchanged with respect to the time it would take to transfer the file and, on June 24, 2015, Michael Hebert ended with a rather terse letter saying, “Your clients have known about this matter for years and have only now decided to do something about it”. The files were transferred by the end of the summer of 2015.

[28] In addition to making efforts to obtain the litigation file from Beament Green, the moving parties made efforts to locate a former Acorn employee and other witnesses between May 2015 and November 2015.

[29] Following up on his March 2014 email to Johnson, Naymark next emailed her on November 24, 2015 stating as follows:

The process has taken longer than my clients would have liked, but they have now extracted Acorn’s claim from its estate via s. 38 of the BIA, have obtained delivery of the file from prior counsel, and are ready to proceed. Can we speak about where matters stand and next steps? Let me know a couple of convenient times for you in the next few days.

[30] On November 30, 2015, Johnson advised that she had closed her file. She stated that, given the passage of time, she would seek her client’s instructions. She and Naymark exchanged further communication and, on December 21, 2015, the Crown advised Naymark that it would not consent to setting aside the dismissals of the actions. Naymark therefore brought this motion in January 2016.

[31] The Crown’s evidence, which I accept, is that while it still has possession of the three contracts for the construction projects, the solicitation documents and some correspondence relating to each of the three contracts, its records, and information associated with the Crown’s accounts payable (i.e. the expenditures for the years 2007 and 2008) were destroyed in accordance with the Retention Guidelines for Common Administrative Records of the Government of Canada. Those records were automatically destroyed on November 20, 2014. As a result, financial documents related to the accounts payable for the three contracts, including invoices received by ICI and amounts paid by the Crown in 2007 and 2008, are no longer available.

[32] The Crown’s evidence is also that it attempted to contact former project managers for each of the three construction projects to see if they had kept records pertaining to those projects. The Crown’s affiant, Gerald Churchill, indicated that he searched the government’s electronic directory system for the three managers. Two of the individuals’ names did not appear in the directory and one, who now works in a different department, stated that his project files were sent to storage to 222 Queen Street. Mr. Churchill also stated that he tried to get in touch with each of the contracting officers for the three construction projects without success. Two of the contracting officers have apparently retired from the federal government and the third was contacted and advised that he no longer had any records pertaining to the project he was managing.

[33] The evidence of one of the law clerks at Mr. Naymark’s firm is that she was able to obtain LinkedIn or Zoominfo profiles, including contact information, for all but one of the six individuals in question. The law clerk contacted one of the individuals and confirmed that he worked for the defendant.

Issues

[34] The issues are as follows:

i. Do Maeder and Reynolds have standing to bring this motion? ii. Did the registrar have jurisdiction to issue the dismissals of Acorn’s actions? iii. If so, should the dismissals be set aside?

Decision

[35] For reasons that follow I am prepared to set aside the three dismissals issued by the registrar in court file numbers CV-08-40722, CV-08-40723 and CV-08-40724.

Positions of the Parties

[36] Maeder and Reynolds argue that the dismissals are a nullity and should be set aside because they were issued in the face of a stay of proceedings triggered by Acorn’s bankruptcy. They argue that, in the alternative, should the court find that the orders are not at nullity, the dismissals should be set aside according to the Reid factors.

[37] The Crown’s position is that the moving parties have no standing to set aside the dismissal as they are not parties. Should the court find that the moving parties in fact have standing, the Crown’s position is that the dismissals should not be set aside due to the moving parties’ failure to advance their claims in a timely manner. It contends that its agreement to set aside the dismissals in 2013 was not indefinite and the passage of time has resulted in prejudice to the Crown.

Analysis

Standing of Maeder and Reynolds to Bring this Motion

[38] The Crown argues that Maeder and Reynolds, as non-parties to this action, have no standing to bring this motion to have the dismissals set aside. It argues that the trustee in bankruptcy had standing to obtain an order to continue but chose not to do so, thus, Maeder and Reynolds, as non-parties, have no standing.

[39] As soon as Maeder and Reynolds were advised by the trustee that it would not pursue the litigation, they brought a successful motion to have the litigation assigned to them by operation of s. 38 of the BIA which sets out the following:

Proceeding by creditor when trustee refuses to act

38 (1) Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.

Transfer to creditor

(2) On an order under subsection (1) being made, the trustee shall assign and transfer to the creditor all his right, title and interest in the chose in action or subject-matter of the proceeding, including any document in support thereof.

Benefits belong to creditor

(3) Any benefit derived from a proceeding taken pursuant to subsection (1), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.

I read this section of the BIA to mean that the creditor(s), to whom litigation is transferred, step into the shoes of the trustee. In the circumstances, I find that, in fact, the moving parties have standing to bring this motion.

Jurisdiction of the Registrar to Dismiss for Delay

[40] Rule 48.14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”) permits a registrar to dismiss an action for delay where the action has not been set down for trial or terminated by any means within the time prescribed by the Rules or where an action has been struck from the trial list and has not been restored. A motion to set aside an order of a registrar is brought under rule 37.14 (1).

[41] The moving parties argue that the Acorn actions were stayed by Acorn’s bankruptcy and could therefore not be dismissed. The case law on this point supports this argument. In Reid v. Dow Corning (2002), 48 C.P.C. (5th) 93 (Ont. Div. Ct), a registrar improperly sent out a status notice prior to the expiry of the required two year period. Justice Then in that case found that the registrar’s dismissal order was issued without jurisdiction and was to be set aside as a matter of right. In 625041 Ontario Inc. v. Ford Motor Company of Canada, 2012 ONSC 2931, an action was stayed on consent pursuant to section 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17. The registrar subsequently dismissed the action for delay. Justice Goodman in that case concludes that the registrar had no jurisdiction to order the dismissals. His words bear repeating here because in my view they make clear that a stay, for any reason, removes the registrar’s jurisdiction to dismiss an action. He states, at para. 27, as follows:

Similarly, in my opinion, it matters not whether the stay of the action is statute driven, founded in a contract, arises from an arbitration clause or whether the court exercises its discretion by ordering a stay under its powers to control its proceedings or by virtue of the common law. Should a party be granted such relief, the direct effect of a stay is to place the action in suspended animation. Neither the plaintiff nor the defendant make take a further step, close pleadings, conduct examinations for discoveries, raise interlocutory motions or set the matter down for trial. 2 For all intents and purposes, the proceeding remains in limbo and the administrative clock stops. Given that time is frozen and a party is constrained from taking a further step absent the lifting of the stay, how can a litigant comply with any of the requirements as out in Rule 48? Compelling or inviting a party to seek an order to lift a stay, or the likelihood that it is open to a plaintiff to move to set aside a stay, in order that a party may be called upon to address an administrative action is counter-productive and defeats the intention of the court in granting the stay.

[42] Justice Goodman goes on to do the analysis based on the principles in the jurisprudence governing such matters and concludes that even if the registrar had jurisdiction to dismiss for delay, the dismissal should be set aside. I adopt the reasoning of Goodman J. and conclude that as a result of the stays arising from Acorn’s bankruptcy in January 2013 the registrar had no jurisdiction to issue the dismissals in August 2013. The stays should be set aside as a matter of right accordingly. Like Justice Goodman in Ford Motor Company, I will nonetheless do the analysis set out in the jurisprudence, as I find that the moving parties meet the test to set aside the dismissals in any event.

Reid Factors

[43] Reid v. Dow Corning Corp. (2002), 11 C.P.C. (5th) 80 (Ont. S.C.) sets out the following factors (called the Reid factors) to be considered on a motion to set aside a dismissal for delay:

(1) the length of the litigation delay and whether or not a plaintiff has provided an adequate explanation for it; (2) whether the failure to meet the mandated time limits was due to inadvertence; (3) whether the motion to set aside the dismissal order was brought promptly; and (4) whether the delay has prejudiced the defendant;

[44] Justice Weiler in H.B. Fuller Company v. Rogers (Rogers Law Office), 2015 ONCA 173, 386 D.L.R. (4th) 262, adds that a court must also consider whether any prejudice to a defendant can be compensated for and whether a fair trial is still possible. He discourages a strict application of the Reid factors in favor of a more contextualized approach taking into consideration all relevant factors and encourages the courts to decide matters on merit as contemplated by rule 1.04 of Rules, rather than on technical non-compliance. Justice Van Rensberg in MDM Plastics Limited v. Vincor International Inc., 2015 ONCA 28, 124 O.R. (3d) 420, expands on this stating that a court is required to weigh prejudice to the defendant against prejudice to the plaintiff. I accept these approaches and apply them to my reasoning.

Explanation for Delay

[45] On the evidence before me, I find Maeder and Reynolds’ explanation for the delay to be adequate. I need not address the issue of whether the delay was due to inadvertence; it was not.

[46] While the Acorn actions were commenced in early 2008 and moved swiftly to mediation in October 2008, it was agreed between the parties that they would wait for the completion of the construction projects to allow the Crown to determine its claim to set-off and to provide the plaintiff with disclosure in this respect. The Crown was not in a position to quantify its entitlement to set-off until the late Fall of 2013. The matter was complicated by Maeder and Reynolds’ action and judgment against Acorn, and by Acorn’s eventual bankruptcy. It was also challenged by the added wrinkle of the registrar’s dismissal of the actions for delay in August 2013.

[47] The Crown argues that Maeder and Reynolds should be held responsible for the delay from August 2013 onward. It contends that it agreed to set aside the dismissals on the understanding that the trustee would obtain an order to continue. While I accept that, the Crown also agreed to continue to engage in without prejudice discussions with Naymark through the summer and Fall of 2013. Naymark and Johnson exchanged a significant number of emails over the course of the summer of 2013 with respect to obtaining a figure for the Crown’s claim to set-off and with respect to the procedural quagmire that arose from the dismissal of the three actions. There was a real question by the Crown and the moving parties as to whether the actions had been stayed by the bankruptcy or whether the parties would have to have the dismissals set aside. While that question was not resolved at the time, they did agree to keep discussing the quantification of the Crown’s right to set-off and they agreed that they would set the dismissals aside at a later date if their discussions were not “fruitful”.

[48] Counsel for Maeder and Reynolds sent emails to the Crown’s lawyer on November 10, 2013 and March 6, 2014 to touch base and to keep her apprised as to delays with respect to the bankruptcy. She did not respond to either of those communications.

[49] Between March 2014 and November 2014, the moving parties waited for the trustee to decide if it would continue with the litigation. It was not until November 2014 that the trustee advised the moving parties that it would not do so. In December 2014, Maeder and Reynolds took immediate steps to have the trustee assign the actions to them under s. 38 of the BIA. Justice Kershman made an order to this effect on December 17, 2014. In the circumstances, In my view, the trustee and not Maeder and Reynolds is responsible for the delay between August 2013 and November 2014. In any event, the question is whether the explanation for the delay is reasonable. In Business Development Bank of Canada v. 1673747 Ontario Inc., 2013 ONSC 286, Leach J. reasons that it would not be reasonable to require a receiver to take immediate action to deal with a bankrupt’s litigation. The reason a receivership or a bankruptcy stays litigation is to afford a period of calm in which a receiver or trustee can take the time required to assess the steps it will take to deal with the bankrupt’s assets and creditors. Leach J. addresses the Court of Appeal case of Hall-Chem Inc. v. Vulcan Packaging Inc. (1994), 21 O.R. (3d) 89 (C.A.), which makes clear that a trustee cannot rely indefinitely on a stay of proceedings or leave litigation in limbo. Justice Leach concludes that so long as a receiver is taking reasonable steps to assess and address a debtor’s litigation, it should not be “undermined with a precipitous obligation to obtain an Order to Continue…”. The delay in 1673747 was approximately 14 months which the court did not find unreasonable. The delay in the case before me is approximately 21 months from the date of the bankruptcy to the date that the trustee advised it would not be pursuing the litigation. I attribute that delay to the trustee. Another 11 months passed once the litigation was assigned to Maeder and Reynolds. Given the complexities involved in Acorn’s bankruptcy including the three actions it commenced against the Crown and the action against it by Maeder and Reynolds it may well be reasonable for the trustee to have taken that time to decide not to pursue the litigation. There is no evidence from the trustee as to the reasons for the delay. Maeder’s evidence is that he and Reynolds as inspectors and creditors took steps to push the matter along including entering into discussions with the Crown prior to obtaining an assignment of the litigation. This combined with their immediate action to obtain an order under s. 38 of the BIA once advised that the trustee would not be obtaining an order to continue, satisfies me that they took reasonable steps to address the litigation.

[50] In early 2015, the notice of the assignment of the litigation to Maeder and Reynolds was sent to Acorn’s creditors as they were entitled to elect to participate in the actions. In 2015, Maeder and Reynolds dealt with two creditors, arranged to obtain Acorn’s files from their former solicitor’s Beament Green, reviewed disclosure, and attempted to contact witnesses. In November 2015, they contacted the Crown to discuss the next steps in the action. In all of the circumstances, given the delay in the completion of the construction projects on which the Crown’s defence was based, the multiple proceedings, and complications relating to the bankruptcy including the trustees failure to pursue the Acorn actions, I am satisfied with the moving parties’ explanation for the delay.

Was the Motion to Set Aside the Dismissal Brought Promptly?

[51] The Crown argues that the motion to set aside the dismissals was not brought promptly. They point to the fact of the delay and to the communication from Michael Hebert that Maeder and Reynolds had “known about this matter for years and have only now decided to do something about it”. While that may be true, the evidence is that counsel for the moving parties and for the Crown were unsure of how to proceed in relation to the dismissals. The parties were involved in without prejudice discussions and agreed that they would move to set aside the dismissals once “without prejudice discussions [were] no longer fruitful”. The Crown’s view was that the actions were stayed by operation of the bankruptcy in any event and that once the trustee filed an order to continue, the dismissals would be stayed. As we know, the trustee decided not to pursue the actions and did not advise Maeder and Reynolds until November 2014. Once advised, the moving parties acted immediately to have the trustee assign its rights in the litigation to them. Over the course of 2015, they took the steps necessary within the context of the bankruptcy to pursue the litigation, including the extraction of Acorn’s files from its former counsel in the summer of 2015.

[52] Following the assignment of the litigation to them, Maeder and Reynolds should have contacted the Crown to let it know of the change in status and should have moved more quickly to set aside the dismissals. I accept however that they were under the impression that the Crown was still amenable to setting the dismissals aside. I also accept that they did considerable work in the context of the bankruptcy to proceed with the litigation by meeting with creditors, extracting the file from Beament Green, and trying to locate witnesses between December 2014 and November 2015. In November 2015, they re-connected with the Crown and were advised on December 21, 2015 that it would not agree to setting aside the dismissals as too much time had passed. Once so advised, they immediately brought this motion. I adopt the reasoning of Laskin J.A. in Finlay v. Van Paassen, 2010 ONCA 204, 101 O.R. (3d) 390 which dealt with a two year delay in moving against a registrar’s order. Justice Laskin makes clear that a two year delay “is not so long that by itself it warrant[s] denying relief”. He states that the delay must be considered in the context of the timeframe preceding it. In that case he commented that the law suit had proceeded reasonably promptly prior to the registrar’s order which was favorable to a positive outcome.

[53] While there is no doubt that Acorn’s litigation did not proceed promptly, there were exceptional circumstances for the delay which have been dealt with in the previous section. The litigation did in fact proceed promptly up to the point where mediation was conducted. It stalled as a result of the unfinished construction projects. The Crown acknowledges that it was unable to quantify its entitlement to set off until late 2013. Thereafter, the evidence is that Maeder and Reynolds took reasonable steps to move the matter along but were hampered somewhat by the trustee’s failure to more promptly decide whether or not to pursue the litigation. In this context, in my view, the delay in bringing the motion to set aside the dismissals should not result in a denial of relief.

Prejudice and Whether a Fair Trial is Possible

[54] In my view, the real issue in this motion is whether the Crown will suffer prejudice if the dismissals are set aside and, if so, whether a fair trial is still possible.

[55] I do not give much weight to the Crown’s evidence regarding the unavailability of witnesses. The evidence is that two of the witnesses retired before the dismissals were ordered, and all but one was found by Mr. Naymark’s law clerk. There is no evidence regarding what those witnesses may or may not recall.

[56] The Crown’s evidence is that it is prejudiced by the fact that its documents have been destroyed and it is unable to locate some of its witnesses. While I accept that documents were in fact destroyed in accordance with a document destruction policy, I do not find it reasonable for that to have been done in the face of litigation. All documents upon which the Crown intended to rely were required by the Rules to be produced well before the document destruction in November 2014. Applying the reasoning of the Ontario Court of Appeal in Chiarelli v. Wiens (2000), 46 O.R. (3d) 780 (Ont.C.A.) Labelle v. Canada (Border Services Agency), 2016 ONCA 187, 346 O.A.C. 155, I accept the moving parties’ argument that the prejudice, if any, was created by the Crown and it cannot now rely on it to defeat this motion. I find that it was incumbent on the Crown to interview witnesses and preserve evidence.

[57] I do not accept the Crown’s argument that its agreement to set aside the dismissals was time limited and that the inaction by the trustee or Maeder and Reynolds led it to believe that the matter had been abandoned. I place considerable weight on the fact that the Crown did not respond to Mr. Naymark’s correspondence of November 10, 2013 or March 6, 2014. His letter of March 6, 2014 specifically invited the Crown to contact him if it had any concerns. No concerns were ever brought to his attention. The Crown apparently closed its file without responding to Mr. Naymark’s communication and without advising him of its intention to do so. In Labelle the respondents indicated that they would not oppose a motion to set aside a dismissal. Their failure to advise that their position had changed was said by the court to belie “any presumption of prejudice to them or their reliance on the dismissal of the action”. Similarly, in the present case, I find the Crown’s failure to advise the moving parties of any concerns and the closure of its file without notice to Naymark flies in the face of its claim of prejudice. If it was concerned that the passage of time caused it prejudice, the Crown should have brought that concern to Naymark’s attention.

[58] Neither party adduced evidence as to the impact of the delay on the ability to have a fair trial in this matter. While some documentary evidence may be missing, the Crown had sufficient documentary evidence by the end of 2013 to quantify its right to set-off and considerable documents still exist. I am therefore not convinced that a fair trial is not possible.

[59] In my view, this matter ought to be heard on its merits as contemplated by rule 1.04. While the delay in this case appears lengthy given the date the actions were started, the Crown by its own admission was not in a position to quantify its entitlement to set-off until late 2013. Thereafter the parties lost contact but Maeder and Reynolds never stopped taking positive steps to advance the action. They were delayed by the trustee’s failure to obtain an order to continue but took immediate steps to assume the litigation once they were advised that the trustee would not pursue the actions. They spent the better part of 11 months meeting with creditors, obtaining the litigation files from former counsel and tracking down witnesses. In my view, they would be prejudiced if these dismissals were not set aside.

[60] In all of these circumstances, I am prepared to order that the dismissals of Acorn’s three actions be set aside both because the registrar had no jurisdiction to issue them and because I am satisfied that the moving parties meet the test set out in the Reid factors.

[61] If the parties are unable to agree on costs, they may make written submissions of no more than 5 pages each within 30 days.

Master Champagne

DATE: March 02, 2017