Court File and Parties
COURT FILE NO.: CV-10-8978-00CL DATE: 20191220 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)
BETWEEN:
DEUTSCHE POSTBANK AG Plaintiff/Responding Party – and – DAVID KOSMAYER, DAN KOSMAYER, KOSMAYER ENTERPRISES INC., MARKETING EXTENSIONS INC. and KROUM VASSILEV Defendants/Moving Parties
COUNSEL: Jonathan Bell, Amanda C. MacLachlan and Katrina Crocker, for the Plaintiff/Responding Party Douglas Stewart and Susan Fridlyand, for the Defendants/Moving Parties
HEARD: November 22, 2019
Reasons for Decision
DIETRICH J.
Overview
[1] The plaintiff, a German financial services company incorporated under the laws of Germany and operating outside of Ontario, alleged fraud against the defendants. It commenced its action over nine years ago, on November 9, 2010. The defendants assert that the plaintiff’s conduct in prosecuting its action reflects a pattern of both inordinate and inexcusable delay, which is prejudicial to them.
[2] The defendants assert that the extreme delay, especially in the context of an alleged fraud action, placed on the Commercial List of this Court, justifies the dismissal of the within action that they seek on this motion.
[3] The plaintiff asserts that both parties have contributed to the delay. It asserts that its efforts to advance the within action to examinations for discovery were stymied by the defendants’ demands for production of translated relevant documents. The plaintiff further asserts that there was no intention to abandon the action and that there were a variety of circumstances that led to delayed progress in the litigation. These include delays arising from corporate restructurings in 2015 and 2018, the corruption of a database in 2016, and the need to engage an external translation firm to satisfy the defendants’ translation requests.
[4] The plaintiff further asserts that even if there were inordinate delays because of its conduct, there is no resulting prejudice that is significant enough to warrant a dismissal of the plaintiff’s right to an adjudication of its claims on the merits.
[5] The plaintiff also asserts that the dismissal of the action is a severe and draconian remedy especially considering its willingness to abide by a strict timetable for the completion of the remaining steps in the litigation.
[6] The law recognizes that inordinate delay results in prejudice. The delay in this case can be said to have placed this Court in jeopardy of being incapable of fulfilling its mandate to deliver a just result.
[7] For the reasons that follow, I find that the delay caused by the plaintiff has been inordinate and inexcusable. The delay has put at risk the possibility of a fair trial for the defendants. Accordingly, the plaintiff’s action must be dismissed.
Factual Background
[8] The defendant, Marketing Extensions Inc., is an Ontario-based consulting company that provided services to adult subscription website owners in the operation of online adult entertainment. It is owned by the defendant Kosmayer Enterprises Inc. and was managed at the relevant time by the defendants David Kosmayer, Dan Kosmayer and Kroum Vassilev.
[9] The plaintiff, through a subsidiary, provided acquirer credit card services to the defendants. The plaintiff, as an acquiror, processed credit card transactions made by customers. The plaintiff was required to release funds, subject to a reserve, to the defendants shortly after the credit card transactions were processed. The plaintiff could then look to the customer’s credit card issuing bank to receive payment.
[10] In providing these services to the defendants, the plaintiff alleges that the defendants profited, at its expense, from a deceptive marketing scheme. The alleged scheme resulted in the defendants charging the customers’ credit cards with unauthorized subscription charges and transactions. Each unauthorized charge created a “charge back”. When a charge back occurred, absent evidence to prove that the transaction was legitimate, the acquirer was required to refund amounts paid by the issuing bank to the acquirer. These charge backs were paid from the reserve.
[11] The plaintiff claims that it suffered damages of approximately USD$2.5 million, being the difference between the amount it held in reserve on the credit card transactions and the amount owing to the issuing banks as a result of charge backs and penalties charged by them related to the defendants’ accounts. The plaintiff alleges that the charge backs in respect of the defendants’ business were much higher than expected and so significant that the amount held in reserve by the plaintiff was insufficient to cover them. Accordingly, it alleges that the defendants fraudulently misappropriated the USD$2.5 million through their deceptive marketing scheme.
[12] The individual defendants, Dan Kosmayer and Kroum Vassilev, attended meetings with the plaintiff in Germany in 2009 to discuss the details of the financial services arrangement. The plaintiff alleges that, at this meeting, the defendants made fraudulent misrepresentations to the plaintiff regarding the legitimacy of the defendants’ business. They allege that these misrepresentations resulted in the USD$2.5 million in damages. The parties attempted, but were unsuccessful, in resolving the higher charge backs through other business relationships and proposals.
[13] The plaintiff then commenced its action. It alleges fraud and seeks damages of USD$2.5 million for fraud, conspiracy, unjust enrichment, and fraudulent misrepresentation, and $500,000 in punitive and exemplary damages.
[14] Below is a chronology setting out key steps in the litigation, prepared by the defendants. The plaintiffs do not dispute the chronology but submit that they sought to schedule examinations for discovery four times before the defendants brought their motion seeking translation of certain documents.
| DATE | EVENT | DURATION AFTER PREVIOUS EVENT |
|---|---|---|
| February 2009 | Plaintiff aware of possible claim | n/a |
| November 9, 2010 | Statement of Claim | 1 year, 9 months |
| January 14, 2011 | Statement of Defence | 2 months, 5 days |
| October 20, 2011 | Reply | 9 months |
| April 5, 2012 | Plaintiff’s Affidavit of Documents | 5 months |
| May 18, 2012 | Defendants’ Translation Request | 1 month |
| June 18, 2012 | Defendants’ Further Translation Request | 1 month |
| February 4, 2013 | Plaintiff’s Supplementary Affidavit of Documents | 9 months |
| June 19, 2013 | Defendants’ Further Translation Request | 4 months |
| January 27, 2014 | Defendants’ Further Translation Request | 7 months |
| June 30, 2016 | Plaintiff writes to Schedule Examinations for Discovery | 2 years, 5 months (3 years, 5 months after Plaintiff’s last step) |
| August 22, 2016 | Defendants Serve Motion Seeking Translation of Documents | 2 months |
| November 16, 2016 | Plaintiff Ordered to Translate Documents | 3 months |
| September 14, 2017 | Plaintiff Delivers Portion of Translated Documents | 10 months |
| April 11, 2018 | Plaintiff Delivers Remainder of Translated Documents | 6 months |
| April 10, 2019 | Plaintiff Delivers Supplementary Affidavit of Documents and Productions Partially Untranslated; requests timetable | 1 year |
[15] As set out in the chronology, the pleadings portion of this action was completed between November 9, 2010 and October 20, 2011, a period of approximately 11 months. After the completion of the pleadings, in the normal course, the parties would proceed to discovery. The plaintiff’s initial affidavit of documents was delivered on April 5, 2012 and thereafter the action virtually ground to a halt. For the next seven years, to April 2019, the parties made almost no progress. Communication was sporadic as the discovery of documents process included a multi-year debate about the plaintiff’s obligation to prepare translation of its productions, which were written in German.
Law and Analysis
a) Delay
[16] The court may dismiss an action for delay pursuant to the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) or pursuant to its inherent jurisdiction. Rule 24.01 provides that a defendant may move to have an action dismissed for delay where the plaintiff has failed to set the action down for trial within six months after the close of pleadings.
[17] In Langenecker v. Sauvé, 2011 ONCA 803, at paras. 6-7, the Ontario Court of Appeal identified two situations in which a court should dismiss a claim for delay: (i) the delay is caused by the intentional conduct of the plaintiff or its counsel that demonstrates a disdain or disrespect for the court process; or (ii) the delay is inordinate and inexcusable such that it gives rise to a substantial risk that a fair trial of the issues in the litigation will not be possible because of the delay. In the case at bar, the defendants take the position that the delay is inordinate and inexcusable.
[18] In Farmer v. 145 King Street West, 2017 ONSC 6003, at para. 31, citing Szpakowsky v. Tenenbaum, 2017 ONSC 18, at para. 19, Ferguson J. set out certain other principles to be applied on a motion to dismiss a claim for delay. These principles include the following:
(a) The plaintiff is responsible for moving the action along, not the defendants.
(b) Any delay in the prosecution of an action requires an explanation. The onus rests on the plaintiff to show that the delay was not intentional. In the absence of an explanation from the plaintiff for the delay, it is to be presumed that the delay was intentional.
(c) The onus is on the plaintiff to rebut the presumption of prejudice arising from the unexplained delay by showing that documents have been preserved, and that the issues in dispute do not require the recollection of witnesses, or that necessary witnesses are available with detailed recollection of events.
(d) An inexcusable delay requires a determination of the reasons for the delay and an assessment of whether those reasons afford an adequate explanation for the delay. Explanations that are “reasonable and cogent” or “sensible and persuasive” will excuse the delay if dismissing the action would be inappropriate. The court will consider the credibility of explanations, the explanations offered for individual parts of the delay and the overall delay and the effect of the explanations considered as a whole.
(e) An inordinate delay after the cause of action arose or after the passage of a limitation period gives rise to a presumption of prejudice in which case the defendant need not lead actual evidence of prejudice and the action will be dismissed for delay unless the plaintiff rebuts the presumption. The plaintiff’s onus is to persuade the court with convincing evidence that there is no substantial risk that a fair trial is not possible.
(f) Courts may dismiss actions for delay even when the relevant rules do not mandate it. A court has inherent jurisdiction to control its own process, including the discretionary power to dismiss an action for delay.
[19] In Sauvé, at para. 7, affirming Allen v. Sir Alfred McAlpine & Sons Ltd., [1988] 1 All E.R. 543 (Eng. C.A.), the Court of Appeal held that when applying rule 24.01, the delay must be inordinate and inexcusable such that it gives rise to a substantial risk that a fair trial of the issues in the litigation will not be possible because of the delay.
[20] Courts have consistently promoted timely resolution of cases as essential to the administration of justice. In Klein v. Krek, 2019 ONSC 711, referencing the Supreme Court of Canada decision in R. v. Jordan, 2016 SCC 27, the court held that “we operate now in a litigation climate where complacency is no longer tolerated.” In Algoma District School Board v. Algoma Insurance Brokers Ltd., 2018 ONSC 7414, at para. 47, Gordon, R.S.J., citing Marche D’Alimentation Denis Theriault Ltd. v. Giant Tiger Stores Ltd., 2007 ONCA 695, stated:
There is a strong public interest in promoting the timely resolution of disputes. ‘The notion that justice delayed is justice denied reach back to the mists of time’ … Litigants are entitled to have their disputes resolved quickly so they can get on with their lives. Delay multiplies the costs and breeds frustration and unfairness.
[21] The plaintiff elected to have this case heard on the Commercial List. The Commercial List Practice Direction specifically provides that the very purpose of the Commercial List is to “expedite the hearing and determination of matters involving issues of commercial law”: online: http://www.ontariocourts.ca/scj/practice/practice-directions/Toronto/commercial/.
b) Prejudice
[22] A lengthy delay presumes prejudice. In the case of Berg v. Robbins, 2009 ONSC 6400 (Div. Ct.), at para. 14, the Court stated:
The onus is upon the plaintiff to rebut the presumption of prejudice by showing that documents have been preserved, that issues and disputes do not require the recollection of witnesses, or that necessary witnesses are available, with detailed recollection of events. Even if the plaintiff rebuts the presumption, the action may still be dismissed if the defendants lead evidence of actual prejudice.
[23] The Alberta Court of Appeal comments on the significant harm caused by delay in Humphreys v. Trebilcock, 2017 ABCA 116 at para. 90:
Litigation delay harms those who are directly and indirectly involved in an action tainted by inaction, the civil justice system and the greater community. Litigation is a form of stress that has the potential to make those directly and indirectly affected unhappy – litigation is expensive, introduces uncertainty … People understandably expect that the mechanisms our state has constructed for the resolution of disputes will process them at a reasonable rate and not allow stale actions to survive … Litigation delay is a corrosive force in a free and democratic state committed to the rule of law.
[24] As a consequence of this harm, the Alberta Court of Appeal held, at para. 123, that a litigant who alleges fraud may be under an obligation to advance the action with reasonable expedition, that is, at a faster pace than that expected of a reasonable litigant pursuing a claim that does not allege fraud or a comparable wrong.
[25] This case involves allegations of fraud, which will likely require viva voce evidence by several fact witnesses. As recognized by the Ontario Court of Appeal in Ticchiarelli v. Ticchiarelli, 2007 ONCA 1, at para. 33, allegations of conspiracy, misrepresentation, unconscionability and undue influence succeed or fail largely on the viva voce evidence offered at trial. The Court of Appeal stated that the state of the witnesses was a key element for the motion judge in assessing prejudice.
Has the delay been inordinate?
[26] To determine whether the delay has been inordinate, the court is required to consider the length of time between the commencement of the proceeding and the motion to dismiss. In this case, the plaintiff’s reply was served over eight years ago and the matter has not been set down for trial. Since commencing this action, there have been no examinations for discovery and the plaintiff has taken no meaningful steps to advance the litigation beyond documentary production.
[27] The plaintiff asserts that the defendants did not advance the action and were unreasonable in their demands for the translation of documents from German to English. It is the plaintiff’s responsibility to prosecute its case efficiently. As noted in Papp Plastics Distributing Ltd. v. Unity Insurance Brokers (Windsor) Ltd., 2018 ONSC 5009, at para. 57, the defendant is not obliged to take positive steps to move the action forward or assist a plaintiff in having the matter progress to trial. I find the delay of over nine years in this case to be inordinate.
[28] In 2016, the defendants were successful in their motion before a master for an order requiring the plaintiff to provide translations of certain relevant documents. In granting the motion, the master considered the allegation of fraud and the fact that the plaintiff was a large financial institution. The bulk of the documents ordered to be translated were not delivered for nine months, notwithstanding that the translation had been completed in a matter of weeks. The plaintiff delivered the remaining translated documents six months after the defendants advised the plaintiff that the first tranche of documents was incomplete. Two and a half years elapsed between the time of the defendants’ motion to compel the production of the translations and the plaintiff’s move to finally advance the litigation commenced nearly nine years earlier. During this time, the plaintiff did appeal the master’s motion regarding the necessity of the translation, but ultimately abandoned that appeal. The plaintiff’s conduct, or lack thereof, is in the view of the defendants the sole reason for the delay in this proceeding. The plaintiff’s action or inaction, as evidenced by the chronology, shows inordinate delay, with the consequent risk that a fair trial will not be possible.
Is the delay inexcusable?
[29] The defendants submit that over the many years that have passed since the action was commenced very few steps have been completed in the action. The trial could still be years away.
[30] To determine whether the delay has been inexcusable, the court must assess the reasons for the delay and whether those reasons afford an adequate explanation for the delay. The Ontario Court of Appeal in Sauvé, at para. 9, confirmed that the explanations for the delay must be “reasonable and cogent” or “sensible and persuasive” at least to the extent that an order dismissing the action would be inappropriate. It further held, at para. 10, that in assessing the explanations offered, the court will consider not only the credibility of those explanations offered for individual parts of the delay but also the overall delay and effect of the explanations considered as a whole.
[31] The plaintiff has only accounted for part or parts of the delay. It has not provided a compelling reason for delay in the prosecution of its case that has spanned more than nine years. For example, between 2012 and 2016, following the exchange of affidavits of documents, few steps were taken by the plaintiff to advance the action, other than to prepare a supplementary affidavit of documents. It ignored the defendants’ requests for translated documents on each of June 18, 2012, June 19, 2013 and January 27, 2014. Finally, on June 30, 2016, the plaintiff wrote asking for dates for examinations for discovery, notwithstanding that it had not responded to any of the requests for translated documents.
[32] The plaintiff asserts it had no intention to delay the prosecution of its case as evidenced by the testimony of one of its directors, Jan te Breuil, who was not cross-examined by the defendants. Mr. te Breuil accounts for the three to four-year period from about 2012 to 2016, during which the plaintiff did very little to advance its claim, by pointing to internal personnel issues and a corporate restructuring in 2014-2015. The plaintiff also attributed delay to a corruption in its database in 2016 and another corporate restructuring in 2018. These excuses were not communicated to the defendants at the time. Regardless, the plaintiff is a large and sophisticated bank, which can be expected to have the infrastructure and wherewithal to prosecute its claims notwithstanding personnel changes and corporate reorganizations. I do not find the plaintiff’s excuses for its delay to be reasonable or persuasive. Such vagaries are not atypical for large financial service institutions and could account for a delay of weeks or months. In this case, the delay spanned years.
[33] Throughout this time, the plaintiff was consistently represented by competent counsel who could have been instructed to prosecute the case effectively, notwithstanding changes in the corporate structure.
[34] Between November 2016 and April 2019, there was another lengthy delay. The plaintiff was ordered to produce the translation on November 16, 2016. According to its own evidence, the translation took weeks, as opposed to months, yet the translation was not provided on a timely basis. The plaintiff attributes this delay to the need to retain external translation services, which took time. However, the plaintiff’s counsel, who does not speak German, also required the translations in order to determine issues of privilege. The plaintiff has not provided a compelling reason for failing to take action to source the appropriate translators and to deliver the translation to its own counsel and to the defendants on a timely basis. During this period of delay, the plaintiff also produced an extensive further supplementary affidavit of documents, causing the defendants to question why the documents that formed part of the supplementary affidavit had not been produced earlier, in accordance with the discovery plan.
[35] The translation of documents was a reasonable request that the plaintiff ought to have foreseen. It knew or ought to have known that the individual defendants were not fluent in German. Further, the plaintiff’s own counsel required the translation in order to properly advise the plaintiff. The translation was essential to meaningful examinations for discovery. A master ordered the translation. Translation of documents to be used in examinations can fairly be, what the lower court in Sauvé, 2011 ONSC 867, at para. 16, referred to as, a “usual hurdle” in litigation, which does not provide a reasonable or persuasive explanation for inordinate delays.
Is there a substantial risk that a fair trial will not be possible?
[36] As held in Sauvé, at para. 11, dismissal is appropriate where there is direct prejudice caused by the delay to the defence’s ability to put its case forward for adjudication on the merits. The Court of Appeal recognized that prejudice is inherent in long delays: “Memories fade and fail, witnesses become unavailable, and documents and other potential exhibits are lost. The longer the delay, the stronger the inference of prejudice to the defence case flowing from that delay.”
[37] An inordinate delay gives rise to a presumption of prejudice. The defendant is not required to show actual prejudice: Papp Plastics, at para. 60. The onus is on the plaintiff to rebut the presumption of prejudice arising from the unexplained delay by showing that documents have been preserved, and that the issues in dispute do not require the recollection of witnesses, or that necessary witnesses are available with detailed recollection of events: Farmer, at para. 31.
[38] I find that the plaintiff has not adduced sufficient evidence to rebut the presumption of prejudice caused by the delay, nor have they adduced sufficient evidence to show that the defendants have not suffered actual prejudice: Ali v. Fruci, 2014 ONCA 596, at para. 11. Their claim that all of the documentary evidence remains intact and available is not disputed. However, the fraud alleged in this case involves representations made at meetings between two of the individual defendants and the plaintiff in Germany some ten years ago. The testimony of these witnesses will be critical to the adjudication of the case. I am satisfied that there is a fair presumption that their recollection would be significantly compromised by the passage of considerable time. It is unlikely that they would have a detailed recollection of the events that occurred ten years ago, when the arrangement between the parties was entered into. They will not be able to recall the facts with the same degree of accuracy as they would have at a time more proximate to when the events occurred. Nor is it likely that the parties will be able to offer reliable evidence at the time of the trial. Because there have not yet been any examinations for discovery, these witnesses cannot even rely on the discovery transcripts to refresh their memories. Similarly, this Court would be deprived of the benefit of such evidence.
[39] The availability of the documents concerning the transaction in and of itself does not equate to a finding by the court that a fair trial can still take place after many years: Jacob v. Playa, 2014 ONSC 6581, at para. 56; aff’d 2015 ONCA 3724. Allegations such as fraud rely largely on viva voce evidence offered at trial: Ticchiarelli, at para. 33, and fading memories resulting from delay affect the veracity of testimony given at trial and the effectiveness of cross-examination, even when transcripts from discovery are available: Algoma District, at para. 81. Accordingly, I find that in this matter, in which fraud is alleged against the defendants, and in which viva voce evidence will be critical, there is a substantial risk that the defendants could not fairly present their case more than ten years after the relevant events. The delay in the plaintiff’s prosecution could well mean that a fair trial is simply not possible.
Disposition and Costs
[40] The defendants’/moving parties’ motion is granted. The plaintiff’s/responding party’s action is dismissed for delay.
[41] Both the defendants and the plaintiff submitted a costs outline. The defendants seek costs of $13,695.28, inclusive of HST and disbursements, on a full indemnity basis, and $8,612.54 on a partial indemnity basis. Had the plaintiff succeeded, it would have sought costs of $15,433.82 on a full indemnity basis.
[42] The defendants were successful on their motion and are entitled to have their costs paid by the plaintiff. The rates charged and the hours spent by the lawyers for the defendants appear to be reasonable given the level of experience of the lawyers. The costs sought by the defendants are very close to the costs that the plaintiff would have sought if successful and are, therefore, in an amount that the plaintiff could reasonably expect to pay. The issue of delay in the prosecution of the plaintiff’s claim, including allegations of fraud, brought against the defendants over nine years ago is very important to the defendants. Having considered the relevant factors set out in rule 57.01(1), I fix the costs payable to the defendants by the plaintiff at $13,695, inclusive of HST and disbursements, which I find to be fair and reasonable.
Dietrich J.
