COURT FILE NO.: CV-15-00525168
DATE: 20210525
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Manulife Financial Corporation
Plaintiff (Respondent)
– and –
Portland Holdings Inc., Mandeville Financial Services Limited, 1459893 Ontario Inc., Maureen Charlton, Marcia Stewart, Frank Laferriere, Geoff Charlton, Bob Clark, Ray Jackson, Nick Keeler, Max Nelson, Dean Rose and Jerry Santucci
Defendants (Appellants)
Eli Lederman and Madison Robins, for the Plaintiff (Respondent)
Paul Le Vay, Justin Safayeni and Spencer Bass, for the Defendants (Appellants)
HEARD: January 28, 2021
VELLA J.
REASONS FOR DECISION
[1] This is an appeal by the defendants from the decision of Master Jolley dated September 8, 2020, under r. 48.14(7), declining to dismiss the action and instead imposing a timetable for the remaining steps in this action at a status hearing initiated by the plaintiff under r. 48.14(5).
[2] For the reasons that follow, the appeal is dismissed.
Background
[3] This action arises out of a purchase by the plaintiff, Manulife Financial Corporation, of the shares of Berkshire-TWC Financial Group (which included the acquisition of a network of advisors/investment dealers) on June 23, 2007 (the “Share Purchase Agreement”). Pursuant to the Share Purchase Agreement, certain funds delivered in cash and shares were held back from the purchase price to be held in a fund for purposes of resolving any claims that might be outstanding as at the date of purchase (the “Escrow Funds”). Manulife has access to the Escrow Funds, which are held by a third-party escrow agent, BNY Mellon, upon approval by the defendants.
[4] The Escrow Funds, which once amounted to 24 million dollars, are now down to just below two million dollars as a result of the resolution of claims by Manulife (the “Advisor Claims”) and authorized by the defendants.
[5] Manulife commenced an action against the defendants (collectively, the “Vendors”) in relation to Manulife’s asserted contractual right to be indemnified in respect of claims and damages that arose before its purchase of the subject network of advisors from the Vendors. The action was commenced by statement of claim issued on March 31, 2015, and seeks, inter alia, indemnification and damages in the amount of two million dollars pursuant to the Share Purchase Agreement.
[6] The action was commenced because on December 15, 2014, the Vendors refused to authorize any further indemnification claims by Manulife, to be paid from the Escrow Funds, on the basis that any such claims submitted after March 31, 2013, were barred by operation of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.
[7] Virtually no steps had been taken to advance the action by Manulife after preliminary settlement discussions held in 2016 for reasons that will be reviewed. The Vendors delivered a notice of intent to defend. The parties agreed that a statement of defence need not be filed until settlement discussions concluded. Unfortunately, no active settlement discussions ensued beyond 2016.
[8] On February 21, 2020, Manulife proposed a timetable to the Vendors for the remaining steps in the action. On March 6, 2020, the Vendors advised that they opposed the timetable, and withdrew an outstanding settlement offer that had been made in 2016.
[9] On May 29, 2020, the Vendors delivered a statement of defence.
[10] Manulife, alert to the fast approaching fifth anniversary from the start of its action, brought a motion for a status hearing under r. 48.14(5), to have its proposed timetable approved.
[11] The status hearing was heard by Master Jolley on August 20, 2020. The Master ordered that the action could proceed and set a timetable for the remaining steps by decision reported at 2020 ONSC 5338 (the “Decision”).
Standard of Review
[12] A decision under r. 48.14 to allow an action to proceed in the face of the pending expiry of a five-year administrative dismissal period is a discretionary one.
[13] Accordingly, absent an error of law, error of principle, or a palpable and overriding error of fact, the Master’s decision must be upheld. Furthermore, a Master’s decision under r. 48.14 is entitled to considerable deference on appellate review: Kara v. Arnold, 2014 ONCA 871, at para. 8.
[14] An error of law is reviewed on a correctness standard. If the Master exercised her discretion on the wrong principles or misapprehended the evidence resulting in a palpable and overriding error, then her decision may be set aside: H.B. Fuller Company v. Rogers (Rogers Law Office), 2015 ONCA 173 at para. 19; Farrage Estate v. D’Andrea, 2020 ONSC 5200, at para. 20.
Analysis
[15] The main argument by the Vendors is that the Master equated a “weak” explanation for the delay on the part of Manulife with an “adequate” one, contrary to the requirement of the case law. The Vendors point to para. 19 of the Decision, where the Master references the explanation offered by Manulife as “weak”.
[16] Furthermore, the Vendors submit that the Master erred in finding that Manulife’s excuse that it needed to wait for the damages to crystallize (in the form of resolving the ongoing Advisor Claims) was an inadequate reason for delay. The Vendors also submit that there was no evidentiary basis for Master Jolley’s findings.
[17] In addition, the Vendors submit Manulife failed to establish that they suffered no non-compensable prejudice as a result of the delay in advancing the action.
[18] Upon review of the Decision, and the underlying evidentiary record, the Master clearly applied the correct legal test under r. 48.14. At para. 2 of the Decision, the Master accurately cites the two-part test articulated in Kara, at para. 8. Namely, that the plaintiff must provide an “acceptable” explanation for the delay and demonstrate that the defendant has not suffered non-compensable prejudice: see also, Khan v. Sun Life Assurance Company of Canada, 2011 ONCA 650, at para. 1.
[19] The Master acknowledges that the burden of proof is on Manulife to “show cause” as to why their action should not be dismissed according to the two-part test set out in Kara.
[20] The Master reviews the law as to what constitutes an “acceptable” reason from 3 Dogs Real Estate Corporation v. XCG Consultants Limited, 2014 ONSC 2251, at para. 38, and concludes that the reason need not be “perfect” or even “good”. Rather, the reason must be “passable” or “adequate”.
[21] The Master finds, at para. 10, that Manulife had “an adequate explanation if not a good one” when considered in the context of achieving a “just result” as required in Kara.
[22] The Master acknowledges that the reason offered by Manulife for the delay, namely ongoing settlement discussions, was not borne out in the evidence. However, the Master finds that the “implicit” excuse for delay found in the evidentiary record, that Manulife continues to receive new claims and evidence in support of existing claims, amounted to an adequate explanation for the delay because the quantum of the damages has not yet crystallized. There was evidence before the Master to allow her to reach this conclusion; specifically, in the affidavits of MacLeod and Armand filed on behalf of Manulife.
[23] The Master then reviewed the second part of the Kara test at para. 11 of the Decision. The Master found that there was no evidence to suggest that the Vendors have suffered a non-compensable prejudice if the action is allowed to proceed. The Master specifically finds, at para. 12, that there was no evidence that documents comprising the contested Advisor Claims had not been preserved or witnesses lost as a result of the delay. In fact, the MacLeod affidavit states that all documents have been preserved, and that given the nature of the claim (contractual interpretation), the memories of witnesses should not be a factor.
[24] Furthermore, at para. 13 of the Decision, the Master finds that the Vendors also undermined their own claim of prejudice by declining to file a statement of defence until nearly five years had passed, and just before the status hearing motion brought by Manulife.
[25] By virtue of their statement of defence, the Vendors have raised bad faith contractual performance, mitigation, and remoteness. As a result, the Vendors have now put into issue the propriety of the resolution of all of the Advisor Claims by Manulife. The Vendors submitted that their defence has given rise to a broader scope of relevant documents and evidence. The Master’s response was that Manulife could not reasonably have foreseen this defence before it was raised and therefore the wider scope of potentially lost relevant evidence was not considered to be a relevant factor in assessing prejudice. Furthermore, there was no evidence in the record suggesting that this broader scope of evidence would not still be available.
[26] The proposition that a defendant cannot rely on prejudice caused by its own conduct in declining to advance an action is well founded in the case law: see Taylor v. TD Insurance, 2020 ONSC 735 (Master McAfee), at para. 16. Moreover, in Kara, at para. 15, the Court of Appeal approved the motion judge’s calculation of the period of time from the delivery of the statement of defence as the starting point for the delay that required an explanation. If this approach were taken in this matter, the delay would have been under three months, which is no delay at all, much less an inordinate delay requiring an explanation.
[27] The Master also considers that if the action is dismissed, the Vendors will “inevitably” commence a new action to determine entitlement for the remaining monies in the Escrow Funds. The new claim would essentially raise the same issues as the current claim. Accordingly, it would be a waste of judicial resources to dismiss this action only to have a new one started.
[28] At para. 18 of the Decision, the Master relies on Samuels v. Mai, 2020 ONCA 408. In that case, the Court of Appeal overturned the motion judge’s decision to dismiss an action for delay because the motion judge failed to consider, as a contextual factor, that the existence of the counterclaim raised the same issues as the action. The Court of Appeal held that it would be unfair to dismiss the action but allow the counterclaim to continue. Here, as observed by the Master, whether the Escrow Funds issue is raised in a new action, or by counterclaim, “its end goal is, as here, a determination of the ownership of the Escrow Funds”. This issue was already before the court by way of Manulife’s action. The Master found the approach in Samuels compelling and applicable to the motion before her.
[29] Overall, the Master adopted a contextual approach in assessing the two-part test where the main objective is to balance the right of the plaintiff to have the matter determined on the merits and the right of the defendants to have a fair trial. This is the approach that the Court of Appeal has mandated under r. 48.14 in cases such as H.B. Fuller Company at para. 28. The Master concluded at para. 18 that, “[t]he parties will eventually litigate ownership of the Escrow Funds, and it makes sense to do so in this action on an expedited timetable.”
[30] The analysis applied by Master Jolley is distinguishable from the analysis in Farrage Estate (relied upon by the Vendors). In Farrage Estate, at para. 28, the court observed that the master applied the contextual analysis as meaning that even if only one of the two parts of the two-part test was satisfied, he could nonetheless save the action if he was satisfied that it was fair and just and in the interest of justice to do so. The court held that this was an incorrect application of the mandatory two-part test. The court ultimately upheld the Master’s outcome and declined to dismiss the action, however, it did so under a different analysis than that employed by the master. The court reiterated that both parts of the Kara test must be satisfied. It is noteworthy that Samuels, which was decided just before the hearing in Farrage Estate, is not referenced by the appellate judge.
[31] The Master did not treat the contextual approach as a factor that eliminated the onus on Manulife to satisfy both parts of the two-part test set out in Kara. Rather, the Master used the contextual approach in assessing whether there was an acceptable explanation for the delay and whether the Vendors would suffer non-compensable prejudice should this matter be allowed to proceed. This approach has support in the recent jurisprudence as well: see Lee v. Kim, 2020 ONSC 6962 (Master Abrams), at para. 16; Samuels, at para. 35.
[32] Furthermore, the Master’s conclusions regarding the bar required to be met by Manulife as being “acceptable” as that term is defined in the Decision, is consistent with the jurisprudence: see 3 Dogs, at para 38; Super A Hotels Investment and Management Group (Canada) Inc. v. 1205723 Ontario Inc., 2020 ONSC 6785 (Master McGraw), at para. 23.
[33] I do not accept the Vendors’ submission that the Master’s use of the term “weak” in one portion of the Decision undermines the level of scrutiny that the Master applied in assessing the adequacy of the reason for the delay. In any event, the adequacy of the reason for the delay must be assessed on a fact-driven basis consistent with the contextual approach observed by the Divisional Court in Margaret Grace Kerr v. CIBC World Markets et al, 2013 ONSC 7685 (Div. Ct.), at para. 41: see 3 Dogs, at para. 34. The Master applied this principle in determining the adequacy of the explanation for the delay, and there was a basis for this conclusion in the evidentiary record.
[34] The Master’s conclusions regarding the lack of non-compensable prejudice is also supported by the jurisprudence. In cases like this, where the defendants have been seemingly content to allow the passage of time by failing to file a timely statement of defence, and thus have contributed to the delay complained about, courts have held that defendants must adduce some evidence of prejudice caused by the delay: see 3 Dogs, at para. 39, citing Chiarelli v. Wiens (2000), 2000 3904 (ON CA), 46 O.R. (3d) 780 (C.A.), at para. 14; Carioca’s Import & Export Inc. v. Canadian Pacific Railway Limited, 2015 ONCA 592, at para. 53; and MDM Plastics Limited v. Vincor International Inc., 2015 ONCA 28, at para. 32.
[35] In H.B. Fuller Company, at paras. 39, 42, the Court of Appeal found, in assessing prejudice to the defendant occasioned by delay, that the motion judge failed to consider evidence respecting the defendant’s conduct. The court observed that, while incumbent upon a plaintiff to conduct its action in a proactive manner, it was unfair on the facts of that case to have ignored the defendant’s passivity.
[36] The affidavits of Armand and MacLeod make the assertion that the Vendors will not suffer non-compensable prejudice should the action proceed. The MacLeod affidavit asserts that the action will revolve around contractual interpretation, all documents have been preserved, and little if anything will turn on the memory of witnesses. Neither deponent was cross examined. In the factual matrix of this case, it was within the discretion of the Master to consider whether the Vendors adduced any evidence of non-compensable prejudice to rebut the evidence of Manulife, and to place weight on the fact that the Vendors did not deliver a statement of defence until just before the status hearing thus undermining its prejudice claim: see Taylor, at para. 16.
[37] The plaintiff initiated this status hearing after the defendants declined to agree to a timetable. There is no suggestion that the plaintiff committed a contumelious or intentional delay or is in breach of any court orders: 3 Dogs, at para. 30. Both sets of parties are sophisticated and have been represented by lawyers from the outset.
[38] I agree with the Master that the most efficient, expeditious and least expensive manner of resolving this matter on the merits is to allow the action to proceed under an expedited timetable. To use the Master’s words, at para. 19, “it would be neither fair nor a good use of judicial resources to dismiss the action.”
[39] The Master applied the correct legal test and made no error in principle. The Master had an evidentiary basis from which she made her findings of facts and did not make an overriding and palpable error.
[40] Therefore, the appeal is dismissed.
[41] Given the lapse of time since the Decision, and this appeal, some of the deadlines in the expedited timetable established by Master Jolley may have to be extended. If so, and if the parties cannot agree on new deadlines, the parties are directed to request a case conference immediately for the purpose of having a new timetable established.
[42] If the parties cannot agree on costs, after exchanging costs outlines, then the plaintiff will have ten days from the release of these reasons to deliver a costs outline and brief written submissions not to exceed two pages to my assistant, Maria Kolliopoulos. The defendants will then have ten days thereafter to deliver their costs outline and responding written submissions not to exceed two pages.
Justice S. Vella
Released: May 25, 2021
COURT FILE NO.: CV-15-00525168
DATE: 20210525
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Manulife Financial Corporation
Plaintiff (Respondent)
– and –
Portland Holdings Inc., Mandeville Financial Services Limited, 1459893 Ontario Inc., Maureen Charlton, Marcia Stewart, Frank Laferriere, Geoff Charlton, Bob Clark, Ray Jackson, Nick Keeler, Max Nelson, Dean Rose and Jerry Santucci
Defendants (Appellants)
REASONS FOR JUDGMENT
Vella J.
Released: May 25, 2021