COURT FILE NO.: CV-11-431698
MOTION HEARD: 20170816
REASONS RELEASED: 20171102
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
2176693 ONTARIO LTD., SARAH E. BARBER, WILLIAM B. WATTERS, LINDA J. WATTERS, MATTHEW B. WATTERS, DAVID W.B. WATTERS and MICHAEL B. Watters
Plaintiffs
- and-
THE CORA FRANCHISE GROUP INC., CORA TSOUFLIDOU, NICHOLAS TSOUFLIDIS, YVAN COUPAL, and DAVID POLNY
Defendants
BEFORE: MASTER M.P. McGRAW
COUNSEL: D. A. Thomson
Email: athomson@dathomsonbarrister.ca
-Counsel for the Plaintiffs
D. Ronde
Email: dronde@casselsbrock.com
-Counsel for the Defendants
REASONS RELEASED: November 2, 2017
Reasons for Endorsement
I. Overview
[1] This is a motion by the Plaintiffs under Rules 48.14(10) and 37.14(8) of the Rules of Civil Procedure for a status hearing to set aside the Registrar’s Order dismissing this action for delay dated November 20, 2015 (the “Dismissal Order”). The Defendants oppose this motion and seek security for costs if it is granted.
[2] This is a highly contentious franchise dispute. Although documentary discovery and examinations for discovery have not been completed, this action has already resulted in numerous motions, a related application and action, multiple appeals and significant issues arising from two changes of plaintiffs’ counsel.
II. The Parties, the Action, Counsel Issues, the Dismissal Order and this Motion
The Parties
[3] The Defendant The Cora Franchise Group Inc. (“Cora”) is the franchisor of the Cora breakfast and lunch restaurant franchise with locations throughout Ontario and other Provinces. The Plaintiff, 2176693 Ontario Ltd. (the “Niagara Falls Franchisee”) was a franchisee which operated a Cora restaurant in Niagara Falls, Ontario (the “Niagara Falls Franchise”) from 2008 until January 2017 pursuant to a franchise agreement dated July 25, 2008 (the “Franchise Agreement”). The Franchise Agreement was terminated effective January 16, 2017.
[4] The individual Plaintiffs, all family members, are shareholders and guarantors of the Niagara Falls Franchisee: Dr. William Watters and his wife Linda Watters are the parents of Sarah Barber, Michael Watters, David Watters and Matthew Watters (collectively the “Individual Plaintiffs” together with the Niagara Falls Franchisee, the “Plaintiffs”). The Individual Plaintiffs are also directors and/or officers of the Niagara Falls Franchisee which was operated by Ms. Barber.
[5] The Individual Plaintiffs are also the shareholders and guarantors of 2130679 Ontario Inc. which is the franchisee of a Cora restaurant (the “Ancaster Franchisee”, together with the Niagara Falls Franchisee, the “Franchisees”) located in Ancaster, Ontario (the “Ancaster Franchise”) which opened in May 2008 and continues to operate. The Ancaster Franchisee and the Individual Plaintiffs commenced an action against the Defendants in 2012 with respect to the Ancaster Franchise (the “Ancaster Action”).
[6] The individual defendants are all current or former principals or employees of Cora: Cora Tsouflidou is the founder; Nicholas Tsouflidou is the President; Yvan Coupal was the Executive Vice-President until 2008; and David Polny was the Executive-Vice President from 2008 to 2016 (together with Cora, the “Defendants”).
The Action and the Proceedings
[7] The Plaintiffs commenced this action by Statement of Claim issued on July 28, 2011 claiming, among other things, statutory rescission remedies pursuant to the Arthur Wishart Act (Franchise Disclosure), 2000 (Ontario) and damages of $2,000,000 for misrepresentation, breach of fiduciary duty, negligence and breach of contract and $1,000,000 in punitive and exemplary damages.
[8] By Endorsement dated December 19, 2011, Hainey J. struck the Plaintiffs’ statutory rescission claims and other paragraphs of the Statement of Claim with leave to amend. The Plaintiffs’ appeal with respect to their rescission claims was dismissed by the Court of Appeal by Endorsement dated July 4, 2012 (2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2012 ONCA 477).
[9] On or about April 14, 2012, counsel for the Plaintiffs advised Cora’s counsel that the Niagara Falls Franchisee would be closing the Niagara Falls Franchise as of April 16, 2012 in order to mitigate its losses. The Niagara Falls Franchise was closed for approximately 1 week before it re-opened.
[10] The Plaintiffs delivered their Amended Amended Fresh as Amended Statement of Claim on September 12, 2012 and the Defendants delivered their Statement of Defence on or about September 13, 2012. The Plaintiffs delivered their Reply and Defence to Counterclaim on October 15, 2012.
[11] The Plaintiffs commenced the Ancaster Action against the Defendants one day later by Statement of Claim issued on October 16, 2012 again claiming $2,000,000 in damages under the Arthur Wishart Act, $2,000,000 in damages for misrepresentation, negligence and breach of contract and $1,000,000 in punitive and exemplary damages.
[12] By Endorsement and Addendum dated May 5 and June 17, 2013, R.F. Goldstein J. struck certain paragraphs of the Plaintiffs’ Statement of Claim in the Ancaster Action (2130679 Ontario Inc. v. The Cora Franchise Group Inc., 2013 ONSC 3099; 2130679 Ontario Inc. v. The Cora Franchise Group Inc., 2013 ONSC 4172).
[13] On July 23, 2013, the Niagara Falls Franchisee entered into an Asset Purchase Agreement to transfer and assign all of its interest in the Franchise Agreement to a third party purchaser (the “Transaction”) which was conditional upon Cora’s consent. The Transaction was scheduled to close on September 3, 2013, however, Cora refused to consent unless the Niagara Falls Franchisee executed a general release in favour of Cora. The parties could not agree on this term or the interpretation of the Franchise Agreement and the Transaction did not close.
[14] Around the same time as the failure of the Transaction, the Registrar issued a Status Notice dated August 26, 2013 advising that the Niagara Falls Action would be dismissed within 90 days unless it was, among other things, set down for trial; terminated; or dealt with by a Judge or Master at a status hearing.
[15] On September 6, 2013, as a result of Cora’s refusal to consent to the Transaction, the Franchisees brought an application to have the general release provision of the Franchise Agreement declared void and unenforceable (the “Application”). The Application was heard on December 6, 2013 and granted pursuant to the Reasons For Decision of W. Matheson J. dated January 31, 2014 (2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2014 ONSC 600). The Defendants’ appeal of this decision was heard by the Court of Appeal on September 25, 2014 and dismissed by Reasons dated March 12, 2015 (2015 ONCA 152).
[16] Meanwhile, status hearings before Master McAfee on January 15, 2014; May 14; 2014 and September 22, 2014, were all adjourned on consent. During this time, the parties were engaged in settlement discussions with respect to both Franchises.
[17] The status hearing finally proceeded before Master McAfee on November 17, 2014. By Order dated November 17, 2014 (the “Timetable Order”), granted on consent, Master McAfee ordered a timetable requiring this action to be dismissed for delay by the Registrar if it was not set down for trial by November 13, 2015 (the “Deadline”).
[18] The Defendants brought a motion for partial summary which was granted by Endorsement of Myers J. dated February 26, 2015 (2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2015 ONSC 1265). The Plaintiffs have not delivered a further amended Statement of Claim to reflect the dismissal of numerous claims.
[19] Although the Timetable Order required the parties to deliver Affidavits of Documents by April 30, 2016, the Plaintiffs have not done so and Cora delivered its Affidavit of Documents on October 30, 2015. Examinations for discovery have not been conducted, however, cross-examinations were held with respect to the partial summary judgment motion on some issues.
Plaintiffs’ Counsel Issues
[20] The Plaintiffs were initially represented by Javad Heydary of Heydary Hamilton PC (“HH”). In or about late November 2013, approximately 2 months after Mr. Heydary commenced the Application and approximately 3 weeks before the hearing of the Application, HH advised that Mr. Heydary had disappeared with over $3,000,000 in client trust funds. Mr. Heydary purportedly died shortly after in Iran. The Plaintiffs allege that these funds included $175,000 of their own.
[21] Given the unfortunate timing, another lawyer from HH argued the Application on December 6, 2013. The Law Society of Upper Canada (the “LSUC”) placed HH under trusteeship after Mr. Heydary’s disappearance. Therefore, the Plaintiffs subsequently retained Darren Smith, formerly of HH, then of Hummingbird Lawyers LLP who obtained the Plaintiffs’ files from the LSUC. Mr. Smith argued the appeal of Matheson J.’s decision, the partial summary judgment motion before Myers J. and attended the 4 status hearings.
[22] On or about May 5, 2015, Mr. Smith recommended that the Plaintiffs prepare their Affidavit of Documents. At paragraph 15 of his affidavit sworn April 26, 2016 (the “Watters Affidavit”) filed in support of this motion, Dr. Watters acknowledges that Mr. Smith recommended that the Plaintiffs prepare an Affidavit of Documents. Mr. Smith stated on cross-examination that he did not receive instructions to begin preparing an Affidavit of Documents and shortly thereafter, the Plaintiffs retained Mr. Thomson.
[23] In or about July 2015, the Plaintiffs, unhappy with the partial summary judgment order, retained their current counsel, Mr. Thomson. By letter dated July 6, 2015, Mr. Thomson served Mr. Smith with a Notice of Change of Lawyer (the “Notice of Change”) and requested that Mr. Smith forward all of the Plaintiffs’ files, providing him with an executed Authorization and Direction.
[24] By separate letter dated July 6, 2015, Mr. Thomson served Mr. Ronde, counsel for the Defendants’ with the Notice of Change and advised that he had “requested the a (sic) substantial file from Mr. Smith. I do not yet have it and therefore there will be some delay in my pursuing this matter until I have had an opportunity to review the file in its entirety”. Mr. Thomson then went on to make a proposal to resolve this action. Mr. Thomson served the Notice of Change on Mr. Smith and Mr. Ronde again by fax on September 13, 2015 and subsequently filed it with the Court.
[25] Due to a dispute over Mr. Smith’s fees, Mr. Thomson was unable to secure the release of the Plaintiffs’ files. As he continued to negotiate with Mr. Smith for the release of the Plaintiffs’ files, Mr. Thomson provided Mr. Ronde with regular updates while they continued to pursue settlement discussions and mediation.
[26] By email dated August 13, 2015, Mr. Thomson responded to Mr. Ronde’s request to participate in a call with Mr. Ronde and Benoit Morel, Cora’s in-house counsel:
“I am able to speak tomorrow but the discussion may be brief. I have not yet received the file from Mr. Smith (he is claiming a Solicitor’s lien and despite my request for a copy of his accounts and supporting time docket he has not provided them so it is difficult to advise my client), but more importantly my client’s accountant is or was out of the country and while I have a preliminary idea of the extent of my client’s losses I am awaiting information from him first to assist in assessing the value of the claim. You had wanted some indication of the size of the losses and costs claimed before committing to a mediated discussion.”
[27] By email dated August 14, 2015, Mr. Thomson subsequently advised Mr. Ronde:
“Upon further reflection I suggest that it would be premature to involve Mr. Morel at this stage. I am hoping to reach an agreement with Mr. Smith for the release of his file and therefore suggest that our assistants discuss a date for us to have a more fruitful discussion in about a month. Let me have your thoughts.”
[28] By letter dated October 1, 2015, Mr. Thomson advised Mr. Ronde as follows:
“I have………started to review eight binders of correspondence and documents that my client has delivered to me. I have also once again requested from Mr. Smith the contents of his file to which my client is entitled. I have yet to receive the documentation that I have requested from my clients’ accountant and therefore am not in a position to provide you with a suggestion as to the total of my clients’ claim for loss”.
The Dismissal Order and This Motion
[29] Unbeknownst to the Plaintiffs, Mr. Thomson and Mr. Ronde, on November 20, 2015, as a result of the passage of the Deadline on November 13, 2015, the Registrar issued the Dismissal Order. Although Mr. Thomson filed the Notice of Change with the court, the Dismissal Order was sent to Mr. Smith who forwarded a copy to Mr. Thomson on November 30, 2015. At no time did Mr. Smith advise Mr. Thomson of the Deadline or the Timetable Order.
[30] Mr. Thomson advised Dr. Watters of the Dismissal Order as soon as he received it, however, it was difficult to obtain instructions and determine next steps without the benefit of the Plaintiffs’ files, specifically preparing a timetable so that he could seek the Defendants’ consent and bring a motion for a status hearing.
[31] At paragraph 23 of the Watters Affidavit, Dr. Watters states that neither he nor the other individual Plaintiffs recall any fixed schedule or dates, adding: “I was under the impression that as long as there were legal issues on the table, then we were following the legal process.” Dr.
Watters further states at paragraph 15: “we have never wavered from our intent to see these matters to a satisfactory conclusion.”, and, in his supplementary affidavit sworn July 29, 2016 states that “it has always been the intention of the plaintiffs to proceed with this litigation.” Ms. Barber has also filed an affidavit sworn July 29, 2016 in which she states that she was not aware of any court ordered timetable.
[32] The only email which Dr. Watters was able to locate with any reference the Deadline or the Timetable Order is Mr. Smith’s email dated November 19, 2014 in which Mr. Smith advises Dr. Watters: “With respect to the timetable, we just got that attached order and timetable back yesterday. We’ve protected the claim from being dismissed until November 13, 2015 and we can go back and get a further extension.” However, a copy of the Timetable Order and the timetable were not attached to Mr. Smith’s email. On cross-examination, Mr. Smith could not recall if he had any discussions with Dr. Watters regarding the Timetable Order and the Deadline other than sending him this email.
[33] On December 15, 2015, shortly after the Dismissal Order was issued, Cora commenced a separate action against Dr. Watters pursuant to his personal guarantee of the obligations of the Niagara Falls Franchisee for amounts owed under the Franchise Agreement for royalties, advertising fees and products and supplies (the “Collection Action”). By Endorsement dated July 5, 2016, Justice O’Marra granted summary judgment in the Collection Action in the amount of $117,000 plus costs of $21,000 (the “Collection Judgment”). The Collection Judgment was upheld by the Court of Appeal by Endorsement dated April 6, 2017 (2017 ONCA 286). Dr. Watters has sought leave to appeal from the Supreme Court of Canada. The Court of Appeal denied an application for a stay of the Collection Judgment by Endorsement dated June 26, 2017 (2017 ONCA 535).
[34] By email message dated January 8, 2016, Mr. Thomson advised Mr. Ronde as follows:
“I have not been able as yet to secure the files from Mr. Smith although he has advised this week that we may pick them up from his office and he will be charging a photocopying fee which is disputed. Although we had sent our Notice of Change of Lawyer to the court for filing the administrative dismissal was to (sic) brought to my attention by the court but by Mr. Smith. There has always been an intention to proceed with that litigation and in the circumstances there is absolutely no doubt that the dismissal will be set aside. I did not expect that you would get instructions to consent to an order setting aside the dismissal and am therefor (sic) happy to discuss a date when both motions might be heard. I would think that the issue of the dismissal ought to be dealt with first. If it is necessary to argue that and if you are not successful I expect that the court will seriously consider awarding my client substantial indemnity costs in the circumstances.”
[35] By letter dated January 22, 2016, Mr. Thomson approved Mr. Ronde’s form of order arising from the Myers J.’s Endorsement and advised that he would re-draft the Statement of Claim as a result. Mr. Thomson added the following:
“While you may believe that I have not been diligent in obtaining my clients’ files from Mr. Smith I can assure you that my clients’ intention all along was to proceed and to do so as expeditiously as possible. I am confident that a motion to set aside the administrative dismissal of the Ancaster action (sic) would be successful and I hope that it will not be necessary to engage in further preliminary skirmishing so that the legitimate issues can be addressed. I am mindful of Justice Meyers’ (sic) that if “parties want and (sic) efficient and affordable remedy and process, they should consider focusing on the strength of their cases and shedding the junk that gets in the way and gives the other side ammunition.” Obviously Justice Meyers (sic) was not impressed with the approach taken by counsel previously and I would hope that there can be cooperation between two of us so that the merit can be addressed.”
[36] On February 4, 2016, Mr. Thomson finally received 15 bankers’ boxes from Mr. Smith comprising the Plaintiffs’ files, 7 months after they were first requested. A copy of the Timetable Order and the timetable were not included with the Plaintiffs’ files nor were there any documents referencing the Timetable Order or the Deadline.
[37] Mr. Thomson was in the process of reviewing the 15 boxes when his father-in-law became ill and passed away on February 25, 2017. Mr. Thomson’s assistant left Mr. Ronde’s assistant voicemail message on February 24, 2017 asking her to advise Mr. Ronde of these circumstances and providing interim responses to certain outstanding requests. After Mr. Thomson’s return to the office, he and Mr. Ronde corresponded on March 2, 3 and 8, 2017 regarding the Plaintiffs’ intention to bring a motion to set aside the Dismissal Order; an attendance at Civil Practice Court on April 6, 2016 to schedule this motion and a motion by the Defendants’ to strike and for summary judgment and the Defendants’ motion for costs of this action as a result of the Dismissal Order. As of that time, Mr. Thomson was still unaware of the existence of the Timetable Order.
[38] Mr. Thomson finally learned about the Timetable Order, the timetable and the Deadline when he was served with the Defendants’ Motion Record seeking costs of the dismissal of this action. At no time prior to this did Mr. Ronde advise Mr. Thomson of the existence of the Deadline, the Timetable Order or the timetable.
[39] The Plaintiffs served their Notice of Motion to dismiss the Dismissal Order on March 24, 2016, over 4 months after Mr. Thomson received the Dismissal Order and after the Defendants delivered their Motion Record seeking costs as a result of its issuance. On April 6, 2016, the parties appeared before Dunphy J. on the Defendants’ motion for costs of this action as a result of the Dismissal Order. The Plaintiffs requested an adjournment given that they had commenced this motion to set the Dismissal Order aside. However, the motion proceeded on the basis that costs could be fixed and then the order stayed if the Dismissal Order were set aside. By Order dated April 6, 2016, Dunphy J. fixed costs arising from the dismissal of $46,880.61 and costs of the motion of $500 (the “Costs Order”).
[40] By Endorsement dated June 12, 2017, Firestone J. ordered that these motions proceed before a Master. This includes the Plaintiffs’ request that the Costs Order be set aside or stayed.
III. The Law and Analysis
The Dismissal Order
[41] Under Rule 48.14(10), a party may move to set aside a Registrar’s dismissal order under Rule 37.14.
[42] Rule 37.14 of the Rules of Civil Procedure provides as follows:
(1) A party or other person who,
(c) is affected by an order of a registrar,
may move to set aside or vary 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.
(2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just.
(3) A motion under subrule (1) or any other rule to set aside, vary or amend an order of a registrar may be made to a judge or master, at a place determined in accordance with rule 37.03 (place of hearing of motions).
[43] The four (4) relevant factors on a motion to set aside a dismissal order of the Registrar under Rule 37.14 are set out at paragraph 41 of Reid v. Dow Corning Corp., [2001] O.J. No. 2365 (S.C.J.):
i.) The plaintiff must adequately explain the delay in the progress of the litigation from the institution of the action until the deadline for setting the action down for trial, satisfying the court that steps were being taken to advance the litigation toward trial or if such steps were not taken to explain why. For example, the complexities of the case and the number of parties may have required significantly more time to move the action toward trial or the delay was caused by interlocutory matters or appeals. The plaintiff could also explain that the action was stalled due to the inattention or negligence of her solicitors which was contrary to her instructions or expectations. It is absolutely essential that the plaintiff lead satisfactory evidence that she personally always intended the action to proceed to trial without delay;
ii.) The plaintiff or her counsel must lead satisfactory evidence to explain that she always intended to set the action down within the applicable time limit but failed to do so out of inadvertence such that the dismissal order was made as a result of inadvertence;
iii.) The plaintiff must demonstrate that she moved forthwith to set aside the dismissal order as soon as it came to their attention;
iv.) The plaintiff must convince the court that the defendants have not demonstrated any significant prejudice in presenting their case at trial as a result of the plaintiff’s delay or as a result of steps taken following the dismissal of the action. The court takes note that witnesses’ memories generally tend to fade over time and that sometimes it is difficult to locate witnesses or documents, however, to bar the plaintiff from proceeding with her action on the ground of prejudice, the defendant must lead evidence of actual prejudice. This might include evidence of specified documents lost over time, or destroyed following a dismissal, or of specific witnesses who have died, or have disappeared and the defendant has been unable to locate them with due diligence. While litigation is outstanding the defendants must take care to obtain and preserve evidence;”
[44] A plaintiff is not required to satisfy each of the 4 factors set out in Reid. Rather than applying a rigid test, the court is to take a contextual approach considering and weighing all relevant factors to determine the result that is just in the circumstances of the particular case (see Scaini v. Prochnicki, 2007 ONCA 63 at paras. 21-28). At paragraphs 5-7 in Habib v. Mucaj, 2012 ONCA 880, the Court of Appeal stated:
[5] There are four well established factors to consider when deciding to set aside an order to dismiss an action: (i) explanation of the litigation delay - a deliberate decision not to advance the litigation will usually be fatal; (ii) inadvertence in missing the deadline - the intention always was to set the action down within the time limit; (iii) the motion is brought promptly - as soon as possible after the order came to the party's attention; and (iv) no prejudice to the defendant - the prejudice must be significant and arise out of the delay: Reid v. Dow Corning Corp. (2001), 11 C.P.C. (5th) 80 (Ont. Div. Crt.).
[6] No one factor is necessarily decisive of the issue. Rather, a "contextual" approach is required where the court weighs all relevant considerations to determine the result that is just. …
[7] Furthermore, on a motion to set aside a dismissal order, the court should be concerned primarily with the rights of the litigants, not with the conduct of their counsel. However, where the lawyer's conduct is not inadvertent but deliberate, this may be different: Marché d'Alimentation Denis Thériault Ltée. v. Giant Tiger Stores Ltd. (2007), 2007 ONCA 695, 87 O.R. (3d) 660 (O.C.A.), at para. 28. Here, the plaintiff lawyers' conduct was found by the Master not to be deliberate. Simply because the appeal judge's view is that the conduct was "negligent" or "bordering on negligent", does not mean the Master was not entitled to find the conduct not to be deliberate or not intentional.
[45] The Court of Appeal has also stated the preference that matters be resolved on their merits. At para. 34 of Giant Tiger Sharpe J.A. stated:
“Expeditious justice must be balanced with the public interest in having disputes determined on their merits. Where, despite the delay, the defendant would not be unfairly prejudiced should the matter proceed for resolution on the merits, according the plaintiff an indulgence is generally favoured.”
[46] More recently, in H.B. Fuller Company et al. v. Rogers (Rogers Law Office), 2015 ONCA 173 at paragraph 27, the Court of Appeal further expanded on the preference for deciding matters on their merits in the context of cases where the delay has resulted from an error by counsel:
“The court's preference for deciding matters on their merits is all the more pronounced where delay results from an error committed by counsel. As the court stated in Habib, at para. 7, "[O]n a motion to set aside a dismissal order, the court should be concerned primarily with the rights of the litigants, not with the conduct of their counsel." In Marché, Sharpe J.A. stated, at para. 28, "The law will not ordinarily allow an innocent client to suffer the irrevocable loss of the right to proceed by reason of the inadvertence of his or her solicitor" (citations omitted).”
[47] In 1196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544, the Court of Appeal held that the focus of the inquiry on a Rule 48.14 status hearing is on the conduct of the plaintiff who, as the party who commenced the proceeding, bears primary responsibility for its progress. The conduct of a defendant may be relevant, especially where a plaintiff who tries to move an action along is faced with some resistance or tactics that are not consistent with a willingness to see a relatively straightforward case proceed expeditiously (1196158 Ontario Inc. at para. 29).
[48] In Giant Tiger and MDM Plastics Limited v. Vincor International Inc., 2015 ONCA 28, the Court of Appeal held that the principle of finality is relevant to the fourth Reid factor. Specifically, when an action has been disposed of in a party’s favour, even as a result of delay and not on the merits, the party’s entitlement to rely on the finality principle grows stronger as the years pass. Even where the party relying on the order could still defend itself despite the delay, at some point the interest in finality must trump the plaintiff’s request for an indulgence (see MDM Plastics, para. 27).
[49] I have also considered and applied Rule 1.04(1) which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits and Rule 1.04(1.1) which requires the court to make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.
[50] With respect to the first Reid factor, the Defendants allege that the Plaintiffs have failed to advance this action because they commenced this litigation for the purpose of asserting leverage and tactical advantage over the Defendants in the dispute over the Franchises. A common theme throughout the Defendants’ submissions is that blame for any delay in advancing this action lies with the Plaintiffs themselves, specifically, Dr. Watters, largely as a result of his own deliberate decisions not to do so.
[51] The Defendants further submit that the numerous interlocutory steps, including the motions and appeals, the multiple changes of counsel, the Application and other steps are not “sufficiently irregular to justify the ongoing failure to move the action forward” such that the Plaintiffs cannot satisfy the first Reid factor.
[52] The following is a summary of the steps and related material activities in this action since the commencement of the action until the issuance of the Dismissal Order, a period of 4 years and 4 months:
i.) the Defendants’ brought a successful motion to strike in December 2011, appealed and upheld in April 2012 and the parties delivered amended pleadings in October 2012;
ii.) the Plaintiffs’ reached an agreement in principle to transfer the Niagara Falls Franchise to a third party purchaser in July 2013 which may have settled this action which did not close as a result of Cora’s refusal to consent and gave rise to the Franchisees’ successful Application in January 2014 which was upheld on appeal in March 2015;
iii.) just prior to the hearing of the Application in December 2013, the Plaintiffs’ first counsel disappeared with approximately $3 million in trust funds, including some of their own, resulting in the Firm’s collapse and requiring the Plaintiffs to retain new counsel;
iv.) four (4) Status Hearings were held from January 2014 from in November 2014, 3 adjourned on consent with the Timetable Order granted on consent, all of which took approximately 10 months;
v.) the Defendants brought a successful motion for partial summary judgment in February 2015;
vi.) the Plaintiffs retained Mr. Thomson in July 2015 who, at the time the Dismissal Order was issued, had still not received the Plaintiffs’ files from Mr. Smith; and
vii.) there was ongoing contact between the Plaintiffs’ 3 counsel and Defendants’ counsel including the parties were engaged in what appear to be if not ongoing settlement discussions then definitely more than periodic ones.
[53] In the first Reid factor, the Plaintiffs are required to provide an adequate explanation for the delay in moving this action forward. In considering this factor, the court may consider the complexities of the case that require significantly more time to move the action toward trial and where delay was caused by interlocutory matters or appeals. As set out above, there has been a significant amount of activity in these proceedings in the 4 years and 4 months from the commencement of this action until the Dismissal Order. Almost 2 years of this delay can be attributed to the pleadings motion, the related appeal and amendments and the 4 Status Hearings which ultimately resulted in the Timetable Order. Another 6 months can be attributed to the transition from Mr. Smith to Mr. Thomson starting in May 2015 and continuing to and past the Dismissal Order when Mr. Smith refused to release the Plaintiffs’ files during which discussions regarding mediation and settlement were ongoing.
[54] In addition, the Transaction might have settled this action but as a result of the Plaintiffs’ refusal to consent and insistence on a general release, the Plaintiffs’ brought the successful Application which was upheld on appeal. Further, although a separate proceeding, the Ancaster Action and its related steps were all proceeding at the same time further contributing to the activity level, the complexity and ultimately the delay with this action.
[55] The focus in this analysis is on conduct of the Plaintiffs’, who bear primary responsibility for moving this action forward. The Defendants place significant emphasis on the Plaintiffs’ instructions to Mr. Smith in May 2015 to hold off preparing their Affidavit of Documents, followed shortly thereafter by the delivery of the Notice of Change in July 2015 appointing Mr. Thomson. In my view, it was not unreasonable for the Plaintiffs to provide these instructions to Mr. Smith given that the change of counsel to Mr. Thomson was imminent. Even if I were to accept the Defendants’ submissions that the Plaintiffs’ instructions were unreasonable, any delay resulting from not beginning to prepare an Affidavit of Documents was minimal and immaterial particularly given that the issue ultimately became moot when Mr. Thomson was retained given that he was not made aware of the Timetable Order and Mr. Smith’s refusal to release the Plaintiffs’ files. Therefore, Mr. Thomson would not have been able to finalize the Affidavit of Documents until after the Dismissal Order was issued. I also note that the Defendants did not deliver their own Affidavit of Documents until October 30, 2015, 6 months after the deadline in the Timetable Order. In my view, the record also does not support the Defendants’ allegations that the Plaintiffs commenced this action to assert leverage or gain tactical advantages in the Franchise dispute or that the Plaintiffs have deliberately delayed moving this action forward.
[56] Consistent with the direction of the Court of Appeal, the court should not lay the blame for any inadvertent or otherwise non-deliberate conduct of Plaintiffs’ counsel on the Plaintiffs so as to penalize them for events that they could not control. In this regard, the delays caused by Mr. Heydary’s disappearance and more prominently, Mr. Smith’s refusal to turn over the Plaintiffs’ file and failure to advise Mr. Smith of the Timetable Order and the Deadline, is not conduct which can or should be attributed to the Plaintiffs themselves. Similarly, the Plaintiffs should not be blamed or penalized for changing counsel from Mr. Smith to Mr. Thomson.
[57] Further, although the focus is on the Plaintiffs’ conduct, the court is entitled to consider the Defendants’ conduct which may have contributed to the very delay of which they are complaining. In this regard, the Defendants consented to all 3 of the adjournments of the status hearings and ultimately to the Timetable Order and refused to consent to the Transaction which might have settled this action, unsuccessfully opposed the Application on the same release issue that would have allowed the Transaction to close then unsuccessfully appealed the Application. While the Defendants were within their rights to do so, it contributed to the delay which they now request this court to use to dismiss the Plaintiff’s claim. The Defendants have deployed an active, aggressive litigation strategy throughout these proceedings. Again, they are entitled to do so, just like the Plaintiffs were entitled to oppose the various relief sought by the Defendants. However, the multiple motions, appeals and related steps have all contributed to the delay in moving this action forward. This is all in the context of an action without significant gaps of inactivity during a 4 year 4 month period.
[58] When considered together these many interlocutory steps and counsel issues contributed significantly to the delay and complexity associated with these proceedings during this 4-year and 4-month period. Considering all of the circumstances and applying the relevant contextual approach, I conclude that the Plaintiffs have provided an adequate explanation for the delay in moving this action forward.
[59] Turning to the second Reid factor, the Defendants submit that because the Plaintiffs commenced litigation as a tactic, they never intended to set this action down for trial and that the issuance of the Dismissal Order was not inadvertent. The Defendants again lay the blame on the Plaintiffs themselves. Specifically, the Defendants assert that since Mr. Smith advised Dr. Watters of the Deadline by email dated November 19, 2014, as a sophisticated, experienced litigant, he should have diarized the Deadline and advised Mr. Thomson when he was retained. In my view, the Defendants’ submissions are inconsistent with both the evidence and the case law.
[60] Notwithstanding the fact that the Notice of Change had been filed 4 months previously, the court office mistakenly sent the Dismissal Order to Mr. Smith. At that time, Mr. Thomson and Mr. Smith were 4 months into a 7-month dispute over the release of the Plaintiffs’ files. At no time during their many discussions and correspondence, even when or after Mr. Smith sent the Dismissal Order to Mr. Thomson, did Mr. Smith advise Mr. Thomson of the Timetable Order or the Deadline. Other than Mr. Smith, the only people who could have advised Mr. Thomson of the Timetable Order and the Deadline were Dr. Watters or Mr. Ronde.
[61] I reject the Defendants’ submission that the case law imposed an obligation on Dr. Watters to diarize or remember the Deadline and advise Mr. Thomson before the Deadline. In my view, it would be unreasonable and contrary to the jurisprudence to require clients to take on tasks normally performed by counsel, such as diarizing deadlines. The standard proposed by the Defendants is that sophisticated litigants like Dr. Watters risk losing the right to have their action tried on its merits, if, in circumstances such as these, they do not act as a back-up for their counsel’s inadvertence. In my view, this would be to punish the client’s for counsel’s conduct, or in the present case, former counsel’s conduct.
[62] Even if I were to impose this more onerous standard proposed by the Defendants, the evidence does not support the Defendants’ conclusions. In his email dated November 19, 2014, Mr. Smith explicitly advised Dr. Watters that “we can go back and get a further extension”. Mr Smith did not attach a copy of the Timetable Order nor does he recall ever speaking to Mr. Watters about the Deadline again. In these circumstances, it would have been reasonable for Dr. Watters to conclude that an extension was available at any time and that he need not worry about it again until his counsel advised him accordingly. I am satisfied that it was also reasonable for Dr. Watters, represented by counsel in complex commercial litigation, to conclude that as long as the Plaintiffs and their counsel were engaged with the Defendants with respect to ongoing legal issues as they were, they were in compliance with the court’s timetable.
[63] I accept Mr. Ronde’s explanation that he did not advise Mr. Thomson of the Timetable Order and the Deadline based on his honest but mistaken belief that Mr. Thomson had a copy of the Timetable Order. However, Mr. Ronde’s honest but mistaken belief is further evidence of inadvertence which led to the issuance of the Dismissal Order. Had the issue of the Deadline or the Timetable Order been raised in Mr. Ronde’s numerous discussions and correspondence with Mr. Thomson before the Deadline, even in passing, Mr. Thomson would have been in a position to bring a motion for a status hearing prior to its issuance to avoid the Dismissal Order.
[64] Considering all of the evidence and circumstances, I conclude that the Plaintiffs intended to set this action down for trial but that the Dismissal Order was issued largely as a result of the non-intentional conduct of the Plaintiffs’ previous counsel. Accordingly, based on all of the factors and circumstances, I conclude that the Dismissal Order was issued as a result of inadvertence.
[65] With respect to the third Reid factor, the motion to set aside the Dismissal Order must be brought promptly and as soon as possible after it is issued. The Defendants submit that the Plaintiffs did not do so, pointing mostly at the approximately 4 months which passed from the issuance of the Dismissal Order to the commencement of this motion.
[66] It is arguable that Mr. Thomson should have simply issued a Notice of Motion to commence this motion sooner than March 24, 2016, over 4 months after the Dismissal Order was issued and just under 4 months after Mr. Thomson received it. However, as set out above, Mr. Thomson was at a disadvantage. When he received the Dismissal Order on November 30, 2015 from Mr. Smith, Mr. Thomson had not received the Plaintiffs’ files and was unaware of the Timetable Order. Although he had some information in the 8 binders from Dr. Watters, not having the entire file understandably made it difficult to obtain instructions, propose a timetable to the Defendants or to bring this motion to set aside the Dismissal Order.
[67] Mr. Thomson diligently corresponded with Mr. Ronde on an ongoing basis to provide updates after he was retained, particularly with respect to his equally diligent efforts to secure the release of the Plaintiffs’ files. This includes his email dated January 8, 2016 when he advised Mr. Ronde that he would be bringing this motion to set aside the Dismissal Order. It is apparent from this email that Mr. Thomson had previously discussed the Dismissal Order with Mr. Ronde and had requested the Defendants’ consent to an order setting it aside which was denied. During Mr. Thomson’s review of the Plaintiffs’ files, his efforts were further delayed by the death in his family even though he continued to communicate with Mr. Ronde during his absence.
[68] In my view, the Plaintiffs could have done more to bring this motion promptly. However, this is mitigated somewhat by Mr. Thomson’s ongoing communication of the Plaintiffs’ intention to bring this motion, delays in receiving and reviewing the Plaintiffs’ files and the untimely death in Mr. Thomson’s family. In this regard, while the simple act of serving a Notice of Motion would have done more to satisfy this third factor, I am satisfied that, although not ideal, Mr. Thomson and the Plaintiffs generally did what was reasonable in the circumstances. The fact that the Plaintiffs did not do all they could to bring this motion more promptly must be considered within the larger, contextual approach and application of the Reid factors.
[69] With respect to the fourth Reid factor, the Plaintiffs must demonstrate that the Defendants would not suffer any actual prejudice as a result of the overall delay, both before and after the Dismissal Order. The Defendants claim that they would suffer actual prejudice if the Dismissal Order is set aside due mostly to the loss of institutional knowledge and the fading of memories over time. This includes the fact that the Defendants Yvan Coupal and David Polny, and two other key witnesses, are no longer employed by Cora and that some of the alleged misrepresentations giving rise to the Plaintiffs’ claim date back over 10 years.
[70] Mr. Coupal and Mr. Polny are Defendants, represented by the same counsel as Cora. They are not, as is often the case, non-party employees who have left their employer and not been involved with the litigation since their departure. While a certain fading of memories and loss of institutional knowledge over time is presumed, it is less of a factor in this case given the Defendants’ active and aggressive role in this litigation. Further, the Defendant Nicholas Tsouflidou, who appears to have taken an active role in this matter, remains in his position as President of Cora, whose in-house counsel, Mr. Morel, is also actively engaged.
[71] The Defendants have also not provided any evidence of documents lost or destroyed as a result of the delay. In any event, the Defendants have an obligation to preserve documents and evidence while litigation is outstanding and given the significant activity in this matter, it appears that many relevant documents have already been exchanged and/or filed.
[72] The Defendants further submit that they have suffered actual prejudice as a result of Cora’s statutory obligations to disclose this action in franchise disclosure documents which are distributed to prospective and renewing franchisees. Quite apart from the fact that I am not prepared to accept that compliance with franchise law is a legitimate basis for claiming actual prejudice, even if I were, the Defendants have not provided any evidence of actual, specific prejudice caused by such disclosure.
[73] I further conclude that the finality principle does not apply in these circumstances. When the Defendants first learned of the Dismissal Order in December 2015 or January 2016, Mr. Thomson requested the Defendants’ consent to set it aside. Accordingly, the Defendants knew from the outset that the Plaintiffs intended to bring this motion to set aside the Dismissal Order, therefore, there was no time period during which the Defendants were able to reasonably rely on the fact and the finality that this action was dismissed.
[74] Based on my review and consideration of the factors and circumstances above, I conclude that the Plaintiff has demonstrated that the Defendants will not suffer actual prejudice if the Dismissal Order is set aside. Consistent with the direction of the Court of Appeal, in the absence of such prejudice, an indulgence to permit the Plaintiffs’ claim to be tried on its merits is preferred.
[75] The Defendants’ assertion that the Plaintiffs’ action should be dismissed because they may have remedies against Mr. Smith does not change my analysis and conclusion. While the Plaintiffs may pursue remedies against Mr. Smith, the Defendants have not referred me to any authority which obligates the Plaintiffs to do so in place of this action or that the availability of such potential remedies should result in their losing the right to have this action tried on its merits.
[76] To deprive the Plaintiffs of their right to have this action heard on its merits in these circumstances would be also contrary to Rule 1.04. Specifically, it would not be just or proportionate for the Plaintiffs to have this action dismissed where their current counsel did not even know about the dismissal deadline while Plaintiffs’ former counsel and Defendants’ counsel did and where Plaintiffs’ present counsel was unable to access his clients’ files for 7 months all in the context of very active, contentious proceedings and in the absence of actual prejudice. I also conclude that because of all the motions, appeals and related steps, there may be some efficiencies going forward with respect to discoveries, productions and submissions as a result of ground already covered.
[77] Having considered and weighed all of the relevant factors and circumstances, I conclude that the most just result in the circumstances is that the Dismissal Order be set aside.
Security For Costs
[78] Given my disposition that the Dismissal Order be set aside, I turn to the Defendants’ request for security for costs.
[79] Rule 56.01 provides as follows:
(1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,
(c) the defendant or respondent has an order against the plaintiff…for costs in the same or another proceeding that remains unpaid in whole or in part;
(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;
[80] As set out by Master Dash in Stojanovic v. Bulut, 2011 ONSC 874, Rule 56.01 does not create a prima facie right to security for costs but rather triggers an enquiry whereby the court, using its broad discretion, must take into account a number of factors to make such order as is just in the circumstances. These factors include the merits of the claim, the financial circumstances of the plaintiff and the possible effect of an order for security for costs preventing a bona fide claim from proceeding.
[81] The initial onus is on the defendants to show that the plaintiff falls within one of the four enumerated categories in Rule 56.01. If the defendant meets the initial onus, the plaintiff can rebut the onus and avoid security for costs by showing that they have sufficient assets in Ontario or a reciprocating jurisdiction to satisfy a costs order; the order is unjust, unnecessary; or the plaintiff should be permitted to proceed to trial despite its impecuniosity should it fail (see Travel Guild Inc. v. Smith, 2014 CarswellOnt 19157 (S.C.J.) at para.16; Coastline Corp. v. Canaccord Capital Corp., 2009 CanLII 21758 (ON SC), [2009] O.J. No. 1790 (ONSC) at para. 7; Cobalt Engineering v. Genivar Inc., 2011 ONSC 4929 at para. 16).
[82] With respect to Rule 56.01(d), the onus on the defendant is a light one to show that there is good reason to believe that the plaintiff has insufficient assets in Ontario to satisfy a costs award (Georgian Windpower Corp. v. Stelco Inc. [2012] O.J. No. 158 (ONSC) at para. 7).
[83] In General Products Inc. v. Actiwin Company Limited, 2015 ONSC 6923, Lemon J. set out the following factors at paragraph 19 for the court to apply when reviewing the sufficiency of the evidence put forward by a plaintiff attempting to demonstrate that it has sufficient assets in Ontario to pay a costs award:
i.) the court must critically consider the quality as well as the sufficient of the assets presently held and whether they are bona fide assets of the company;
ii.) there must be demonstrated exigible assets. It is insufficient for the plaintiff to show that it is profitable since the focus of the rule is not on income, but rather on the nature and sufficiency of assets;
iii.) the court must consider the liabilities of the company as well as its assets and in particular whether the assets to which the defendant is expected to look are secured to another creditor;
iv.) the rule does not countenance extensive and speculative inquiries as to the further value and availability of the asset. A mere possibility that the assets may be removed at some future time is not, without more, grounds for security;
v.) the failure of a plaintiff to respond to a defendant’s enquiry as to the availability of assets may raise a doubt as to the existence of assets.
[84] The plaintiff’s financial disclosure requires “robust particularity” including: the amount and source of all income; a description of all assets (including values); a list of all liabilities and other significant expenses; an indication of the extent of the ability of the plaintiffs to borrow funds; and details of any assets disposed of or encumbered since the cause of action arose (General Products at para. 19; Al Masri v. Baberakubona, 2010 ONSC 562 at para. 19).
[85] The quantum of security for costs should reflect a number that falls within the reasonable contemplation of the parties reflecting what the successful defendant would likely recover and the factors set out in Rule 57.01 (720441 Ontario Inc. v. The Boiler et al, 2015 ONSC 4841 at para. 56; Marketsure Intermediaries Inc. v. Allianz Insurance Co. of Canada, 2003 CarswellOnt 1906 at paras. 17-20). In most cases, security for costs will be ordered on a partial indemnity scale (The Boiler at para. 58; Marketsure at paras. 17-18). It is appropriate in certain circumstances to order that security for costs be paid in tranches by stage(s) in the litigation on a “pay as you go” basis (Marketsure at paras. 13-15).
[86] The Defendants submit that the Plaintiffs have insufficient assets in Ontario to pay a costs award and therefore fall within Rule 56.01(d). The Defendants argue that the Niagara Falls Location, the only business of the Niagara Falls Franchisee, ceased operations in January 2017 and owed significant amounts to Cora leading Cora to commence the successful Collection Action against Dr. Watters. The Defendants submit that the Plaintiffs’ evidence regarding their assets is insufficient to avoid a security for costs order and that an appropriate amount which includes costs to take this action to the end of trial on a partial indemnity scale and the Costs Order is $161,801.65.
[87] The Plaintiffs submit that although the Niagara Falls Franchise has closed, the opening costs were $750,000 and Dr. Watters states in the Watters Affidavit: “I would think that it would be worth today as much as Cora is looking for as security for costs.” The Niagara Falls Franchisee’s assets include the fixtures, furnishings and equipment of the restaurant business which are currently in storage.
[88] The glaring deficiency with the Plaintiffs’ evidence regarding the Niagara Falls Franchisee’s assets is that, far from robust particularity, they have provided no evidence or specifics regarding the nature and sufficiency of the assets other than the unsupported statements in the Watters Affidavit. The Plaintiffs have provided no inventory, description, location, condition or any particulars at all, advancing only Dr. Watters’ speculative personal thoughts on what these business assets might be worth based only their value in 2008, prior to almost a decade of use. There is also no evidence from BDO, the accountant for the Niagara Falls Franchisee, or otherwise, regarding the assets and liabilities of the Niagara Falls Franchisee, including the value of the assets.
[89] The only other evidence of assets put forth by Plaintiffs is Dr. Watters’ franchise application letter to Cora dated October 12, 2006 in which he states that he and his wife Linda have an estimated personal net worth of approximately $3,000,000. Although this information is now over a decade old, again, no updated evidence, specifics or details have been provided, let alone the kind of detail and particularity which are specified in the case law. While Plaintiffs’ counsel submits that Dr. Watters “can get the funds if he has to” this is far from sufficient.
[90] Based on the factors and circumstances above, in my view, the Plaintiffs are unable to rebut the onus that they have insufficient assets in Ontario or a corresponding jurisdiction to pay a costs award and therefore, it is fair and just that an order for security costs issue. Given my conclusion that it is appropriate for the Plaintiffs to pay security for costs on the basis of Rule 56.01(d), I will not address the Defendants’ submission that the Plaintiffs also fall into the enumerated category of unpaid costs awards under Rule 56.01(c), specifically because of the Costs Award.
[91] Turning the appropriate amount of security for costs, the Defendants have provided a breakdown by steps in the litigation with respect to the amount which they seek. The Plaintiffs submit that this amount is grossly exaggerated.
[92] The exercise of the court’s broad discretion in determining a reasonable and appropriate quantum of security for costs is substantially similar to the exercise of its discretion in fixing costs pursuant to Rule 57.01. Having reviewed the record and considered the submissions of counsel, I am satisfied that it is reasonable, appropriate and within the reasonable contemplation of the parties in the circumstances for the Plaintiffs to post security for costs in the amount of $30,000 up to and including examinations for discovery (including answers to undertakings and any motions arising from such undertakings and refusals) without prejudice to the Defendants’ right to seek further security for costs for subsequent steps. In my view, ordering that this amount be paid for the completion of documentary and oral discovery is reflective of the nature and status of this action, the steps taken to date, efficiencies that might be gained from previous steps and is consistent with Rule 1.04. This amount does not include any amount for the Costs Order.
IV. Disposition
[93] Order to go as follows:
i.) the Dismissal Order is set aside;
ii.) the Plaintiffs shall post security for costs with the Accountant of the Superior Court of Justice (Ontario) to the credit of this action and in favour of the Defendants in the amount of $30,000.00 with respect to the Defendants’ costs to be incurred up to and including the completion of examinations for discovery within 90 days;
iii.) the Plaintiffs shall not take any further steps in this action until the security for costs is posted and proof of same is provided to counsel for the Defendants;
iv.) this order is made without prejudice to the Defendants’ right to bring a motion for additional security for costs for steps to be taken after examinations for discovery.
[94] If the parties are unable to agree on a new timetable for this action, including a new deadline to set this matter down for trial, they may contact me through the Masters Administration Office to arrange for a telephone case conference. If the parties cannot agree on the costs of this motion, a process for the filing of costs submissions can be spoken at that case conference or one may be arranged for that express purpose.
[95] As I advised counsel, I am not prepared to deal with the Costs Order, which was ordered by a Judge and pre-dates this motion. If the parties cannot agree on a resolution with respect to the Costs Order, they should attend before a Judge to speak to the matter. I am fully prepared to deal with the Costs Order should a Judge request that I do so.
Released: November 2, 2017
Master M.P. McGraw