Court File and Parties

COURT FILE NO.: CV-13-486580

MOTION HEARD: 20200930

INTERIM ENDORSEMENT: 20200930

ADDITIONAL SUBMISSIONS: 20210915

REASONS RELEASED: 20211221

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

2479240 ONTARIO INC.

Plaintiff

• and-

CS CAPITAL LIMITED, ALBERT PACE, MICHAEL MOLDENHAUER, 2267930 ONTARIO INC., MCMURRAY ENERGY CORP., MCMURRAY ENERGY CORP. II, MCMURRAY ENERGY CORP. III, MCMURRAY ENERGY CORP. IV, MCMURRAY ENERGY CORP. INC., MCMURRAY ENERGY LP, MCMURRAY ENERGY MANAGEMENT INC., 1573350 ALBERTA LTD., 1573330 ALBERTA LTD., JOHN DOE CORPORATION 1, JOHN DOE CORPORATION 2 and JOHN DOE CORPORATION3

Defendants

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: B. Martin

Email: bmartin@moodiemair.com

• for the Plaintiff

I. Graham

Email: igraham@agllp.com

• for the Defendants CS Capital Limited and Albert Pace

D. Naymark

Email: dnaymark@naymarklaw.com

• for the Moldenhauer Defendants

REASONS RELEASED: December 21, 2021

Reasons for Endorsement

I. Overview

[1] This is a motion by the Plaintiff to vary my Endorsement dated July 27, 2018 (the “Order”), ostensibly granted on consent, in which I dismissed the Plaintiff’s motion to set aside the Registrar’s Dismissal Order dated May 23, 2016 (the “Dismissal Order”). The Plaintiff requests that the Order be varied so that this action may continue as against the Defendants CS Capital Limited and Albert Pace (the “Pace Defendants”).

[2] As set out in my Interim Endorsement dated September 30, 2020, when the parties made their submissions on this motion, the trial of the main, related action in court file number CV-11-434398 (the “Main Action”) had been adjourned to December 7, 2020. Counsel advised that the disposition of the Main Action might render this motion moot. Therefore, at my suggestion, the parties agreed that they would make full submissions on this motion but I would defer my decision pending the result of the Main Action.

[3] Counsel advised on June 9, 2021 that Kimmel J. released her Reasons in the Main Action on April 21, 2021 and requested that I render a decision. On September 15, 2021, counsel provided an update on the status of relevant appellate jurisprudence and confirmed that no further submissions would be made.

II. Background

[4] Tony Chahine and Albert Pace had a longstanding business relationship. This is one of four related actions involving numerous corporations which they control with respect to an oil and gas venture in Alberta led by the Defendant Michael Moldenhauer and corporations he controls (the “MEC Defendants”). Mr. Chahine is a director of the Plaintiff 2479240 Ontario Inc.

[5] In August 2011, Mr. Chahine and the MEC Defendants entered into a Release and Quit Claim Agreement which released the MEC Defendants from all actions and claims. The MEC Defendants are not parties to any of the related actions. Some of them were added as Third Parties to the Main Action, however, these claims were settled. The Plaintiff served the MEC Defendants with its Statement of Claim in this action in February 2014. The Plaintiff advised that since its claims were contingent on an issue in another proceeding, the MEC Defendants were not required to defend this action or take any steps.

[6] In or about August 2015, the parties agreed that a trial of the issues and factual findings in the Main Action would be binding on the other 3 actions. This was set out in the Order of Master Haberman (as she then was) dated May 10, 2016 (the “2016 Order”), granted on consent, pursuant to which this action was held in abeyance. All actions other than the Main Action were dismissed by the Registrar in 2016 or 2017, including this action pursuant to the Dismissal Order.

[7] After receiving the Dismissal Order, Plaintiff’s counsel, James McReynolds, contacted counsel for the Pace Defendants to seek their consent to set it aside. The Pace Defendants were initially opposed but later advised that they would not oppose the motion. The Plaintiff submits that this was consistent with the 2016 Order and the fact that this action was being held in abeyance pending disposition of the Main Action.

[8] On April 13, 2017, the Plaintiff brought a motion to set aside the Dismissal Order (the “Set Aside Motion”). The MEC Defendants opposed and filed responding materials. The Set Aside Motion was adjourned on two occasions and ultimately made returnable on July 27, 2018 on a peremptory basis.

[9] On July 4, 2018, Mr. McReynolds delivered an offer to settle the Set Aside Motion to Daniel Naymark, counsel for the MEC Defendants. Counsel exchanged various offers and discussed terms and reviewed Minutes of Settlement (the “Minutes”) drafted by Mr. McReynolds. On July 26, 2018, the Plaintiff and the MEC Defendants agreed to the form and content of the Minutes. The Pace Defendants were not involved in these discussions and are not parties to the Minutes.

[10] Paragraph 1 of the Minutes states:

“The parties to these Minutes shall consent to an order dismissing the Motion on a without costs basis and shall seek the consent of the remaining defendants to such order”.

[11] The record demonstrates that counsel explicitly discussed and agreed to the dismissal of the Set Aside Motion and the requirement to seek the consent of the Pace Defendants. There is no evidence on the record before me that counsel for the Plaintiff and the MEC Defendants discussed the possibility of this action continuing against any parties, including the Pace Defendants.

[12] Consistent with the terms of the Minutes, on the night of July 26, 2018, Mr. McReynolds emailed Julia Wilkes, counsel for the Pace Defendants, to seek her clients’ consent to the dismissal of the Set Aside Motion. Given the time constraints, Ms. Wilkes was unable to reach Mr. Pace to obtain his consent. Therefore, she advised Mr. McReynolds by email that he could advise the court that the Pace Defendants did not oppose the Set Aside Motion.

[13] Mr. McReynolds attended before me on July 27, 2018 and advised the court that the parties had resolved the Set Aside Motion on consent. The Order reads as follows:

“The parties have resolved this motion and consent to the dismissal of this motion on a without costs basis. The parties may file a form of order with me for my review and approval through the Masters Administration Office.”

[14] Due to the subsequent issues giving rise to this motion, no form of order was filed, issued or entered and execution copies of the Minutes were not circulated. The parties agree that given the position of the Pace Defendants communicated to Mr. McReynolds, he incorrectly advised the court that the Set Aside Motion was resolved on consent and the Order should have stated that the Pace Defendants were unopposed.

[15] Mr. McReynolds states that during a meeting with his clients in early August 2018 he realized that he had a made a mistake with respect to his instructions such that the Set Aside Motion was only to be dismissed as against the MEC Defendants. By letter dated August 14, 2018 to Mr. Naymark and Ms. Wilkes, Mr. McReynolds advised that he mistakenly understood his instructions and that in fact his instructions were to obtain a dismissal of the motion as against the MEC Defendants and have the action reinstated against the Pace Defendants. He further advised that it was necessary for the Plaintiff to bring a motion to set aside the Order on the grounds of error and requested their position.

[16] In his affidavit sworn December 10, 2019, Mr. Chahine states that he and his colleague Aiman Dally corresponded and/or spoke with Mr. McReynolds with respect to the Set Aside Motion and the Minutes. Mr. Dally was authorized to speak with Mr. McReynolds and instruct him with respect to the litigation. Mr. Chahine further states that, as set out in Mr. Dally’s correspondence to Mr. McReynolds he did not wish to “continue with the Moldenhauer and related companies’ case”. Mr. Chahine claims that this was decided given that the MEC Defendants were the only parties opposing the Set Aside Motion and other concerns he had with his claims against the MEC Defendants. He further states that he corresponded with Mr. McReynolds regarding the terms of the Minutes between himself and Mr. Moldenhauer and the strategy of the overall litigation. He states that at no time did he intend to instruct Mr. McReynolds to dismiss the Set Aside Motion as against the Pace Defendants. The Plaintiff has not produced any correspondence between Mr. Chahine or Mr. Dally and Mr. McReynolds after June 21, 2018 and before August 10, 2018 which includes the time period when Mr. McReynolds negotiated the Minutes with Mr. Naymark.

[17] In correspondence with Mr. McReynolds in August 2018, Mr. Naymark raised concerns about the Plaintiff’s request to vary the Order and invited him to make a proposal. Mr. McReynolds advised Mr. Naymark on September 21, 2018 that the Plaintiff intended to bring this motion. Mr. Naymark wrote to Mr. McReynolds on October 1, 2018 stating that given the passage of time he assumed that the Plaintiff no longer intended to bring the motion. The MEC Defendants claim that they considered the matter to be at an end therefore later in the Fall of 2018 they destroyed relevant documents as part of an office file purge.

[18] On December 19, 2018, Robin Moodie advised Defendants’ counsel that he had been retained by LawPRO to investigate this matter and would contact them in the New Year. Mr. Naymark responded on December 31, 2018 advising of the MEC Defendants’ position including that they long considered the matter closed. Mr. Moodie responded on April 17, 2019 and requested the Defendants’ consent to vary the Order. Mr. Naymark responded on April 30, 2019. LawPro counsel advised in early July 2019 that they were preparing this motion.

[19] The Plaintiff commenced this motion by Notice of Motion on or about July 30, 2019 and delivered its Motion Record on September 24, 2019.

III. The Law and Analysis

[20] For the reasons that follow, I conclude that the Plaintiff’s motion should be dismissed.

[21] As a preliminary issue, I reject the Plaintiff’s submission that the MEC Defendants have no standing to oppose this motion. The Plaintiff submits, relying on Ivandaeva Total Image Salon Inc. v. Hlembizky, 2003 CanLII 43168 (ON CA), [2003] O.J. No. 949 (C.A.) and Innvest Master Properties GP X Ltd. v. 1271519 Ontario Limited, 2017 ONSC 5961, that the MEC Defendants are not parties “affected” by the relief sought on this motion since this action is currently dismissed and the Plaintiff does not seek to revive it as against the MEC Defendants. The Plaintiff argues that the relief sought on this motion does not seek any action from the MEC Defendants or make any declaration about or directly impact their legal, proprietary or economic rights and interests (Ivandaeva at para. 27; Innvest at para.21).

[22] In my view, the present case is distinguishable from Ivandaeva and Innvest. Those cases considered whether non-parties were “affected” by the orders sought. By contrast, the MEC Defendants are parties to this action who negotiated the Minutes pursuant to which the Order at issue was obtained and which the Plaintiff now seeks to vary. On a more basic level, the Plaintiff sought the MEC Defendants’ consent and position on this motion, served them with its Motion Record and negotiated the Minutes which provided for the Order. In my view, it follows that the MEC Defendants are entitled to respond and make submissions where the Plaintiff now seeks to vary the Order which the MEC Defendants negotiated and agreed to. Further, the continuation of this action as against the Pace Defendants may affect the MEC Defendants’ rights under certain agreements to which they are parties.

[23] Even if I accept that the MEC Defendants have no standing, it would not change the result. It is not disputed that the Pace Defendants have standing to oppose the motion and they filed materials and made submissions. On the basis of the Pace Defendants’ submissions, including the overlap with those of the MEC Defendants, I remain satisfied that the motion should be dismissed.

[24] Turning to the substantive submissions, it is important to highlight two issues. First, although the parties acknowledge that given the Order was actually unopposed by the Pace Defendants and not on consent, their submissions have relied on cases dealing with consent orders. I was not referred to any cases where some parties consented and others were unopposed. Second, although the Plaintiff has not brought a motion to enforce or vary the Minutes, given the inevitable overlap between the Minutes and the Order and the overall circumstances, the parties have relied on some cases related to the enforcement of settlement agreements. I have considered all of these submissions and distinctions and am satisfied that it does not change my ultimate conclusions.

[25] The Plaintiff brings this motion under Rule 59.06 (1) which, together with (2), states:

“(1) An order that contains an error arising from an accidental slip or omission or requires amendment in any particular on which the court did not adjudicate may be amended on a motion in the proceeding.

(2) A party who seeks to,

(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;

(b) suspend the operation of an order;

(c) carry an order into operation; or

(d) obtain other relief than that originally awarded,

may make a motion in the proceeding for the relief claimed.”

[26] The test to vary a consent order was set out in Monarch Construction Ltd. v. Buildevco Ltd., (1988), 26 C.P.C. (2d) 164 (Ont. C.A.):

“A consent judgment is final and binding and can only be amended when it does not express the real intention of the parties or where there is fraud. In other words, a consent judgment can only be rectified on the same grounds on which a contract can be rectified. Here, there was no allegation of fraud and, in our opinion, there was no basis on the material before the local judge on which she was entitled to grant rectification. The contract is unambiguous on its face; on the motion of Monarch, it was incorporated in a consent judgment and should be performed in accordance with its terms.”

[27] More recently, courts have held that a consent order may be set aside or varied on the same grounds as the agreement giving rise to the order including common mistake, misrepresentation, fraud or any other ground which would invalidate a contract (Yan v. Chen, 2014 ONSC 3111 at para. 85; Ball Media Corp. v. Imola, 2016 ONSC 134 at paras. 36-38; Vasarhelvi v. Borges, 2019 ONSC 590 at para. 18; Verge Insurance Brokers Limited et al v. Richard Sherk et al, 2015 ONSC 4044 at paras. 54-57). In Verge, a motion under Rule 56.01(2), Quinn J. commented that consent orders have a “relative sanctity” and a subsequent change in circumstances should not be utilized to upset parties’ fairly negotiated bargains:

“A consent order represents an agreement reached by the parties. A court rarely, very rarely, should pick and choose what part or parts of that agreement may be reworded or otherwise excused from enforcement” (Verge at paras. 1, 72 and 86).

[28] There is no evidence of common mistake, fraud, misrepresentation or any other basis in contract to rectify the Order. The Minutes are unambiguous and the Order accurately reflects the terms of the Minutes. Accordingly, there is no reason to vary the Order which represents the fairly negotiated agreement of the Plaintiff and the MEC Defendants, sophisticated parties represented by counsel.

[29] In the face of the Minutes and the Order, the fact that the Pace Defendants previously agreed to hold this action in abeyance does not alter my analysis or conclusions. Further, the Pace Defendants advising that they were unopposed is simply a function of counsel being unable to obtain instructions to consent (as requested by Mr. McReynolds) given the time constraints and is unrelated to the 2016 Order and their previous positions.

[30] The Plaintiff relies on Traders General Insurance Co. v. Iskenderov, [2009] O.J. No. 3732. Similar to the present case, the plaintiff obtained a consent order dismissing an action as against all defendants rather than only against some defendants as the parties had agreed. In that case, Boswell J. varied the consent order concluding based on the minutes of settlement that it was not intended to include a dismissal of the claims against all parties and that it contained an error arising from an accidental slip in the manner in which it was drafted. Traders is distinguishable and materially different from the present case given that the Minutes do not provide for the action to continue as against the Pace Defendants such that there was an accidental slip in the drafting of the Order. The Plaintiff obtained the Order which the parties agreed to in the Minutes and attempted to obtain the consent of the Pace Defendants. As such, the present case involves a unilateral mistake of the Plaintiff while Traders is a case of common mistake.

[31] I also reject the Plaintiff’s assertion that Rule 37.14(1)(a) is applicable to this motion. The Order was not obtained on one of the enumerated grounds under Rule 37.14(a) including a motion brought without notice as in Traders. Further, Rule 37.14 (1)(a) requires the moving party to move “forthwith after the order comes to the person’s attention” to have the order varied which is not the case here given the delay of approximately 11 months between the Order and service of the Notice of Motion, another fact relied on by Boswell J. which distinguishes Traders.

[32] The Plaintiff further submits that since the Defendants would not suffer any actual prejudice, the public interest favours having its claim against the Pace Defendants determined on the merits (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. 34). The Plaintiff argues that the general preference for determining matters on their merits is stronger where, as here, there has been an error or inadvertence of counsel as the law will not ordinarily allow an innocent client to suffer the irrevocable loss of the right to proceed by reason of counsel’s inadvertence (H.B. Fuller Company et al. v. Rogers (Rogers Law Office), 2015 ONCA 173 at para. 27).

[33] In advancing these arguments, the Plaintiff is impugning the conduct of its counsel. Though not determinative of the present motion, in Massiah v. Justices of the Peace Review Council, 2018 ONSC 2179, the Divisional Court rejected ineffective assistance of counsel as a basis for a motion under Rule 59.06(2) in the absence of fraud or facts discovered after the order is made:

“If a party is entitled to claim that a civil order is tainted by the ineffective assistance of counsel, the issue can be raised on an appeal. Assuming, without deciding, that ineffective assistance of counsel is a ground of complaint that can be recognized by a court reviewing an order made in a civil proceeding, it is not a basis for a motion under Rule 59.06. It is neither a fraud nor does it arise from facts discovered after the court’s order has been made.”

[34] On the broader principle advanced by the Plaintiff, I conclude that the balance between the Plaintiff’s right to have its action heard on the merits and the Defendants’ right to rely on the finality of the Order must be reconciled in favour of the Defendants. In addition to the relative sanctity of consent orders and the corresponding hesitance of the courts to interfere with consent orders fairly bargained by the parties, the Court of Appeal has recently confirmed the strong presumption in favour of the finality of settlements (Deschenes v. Sylvestre Estate, 2020 ONCA 304 at para. 27). The Divisional Court commented on the finality of orders in Brown v. The Municipal Assessment Corp., 2014 ONSC 7137:

“19 …..In my view, the mere fact that the technical requirements for the finality of the earlier order are missing, because the order was not signed and entered, does not permit a judge to vary that order in whatever manner s/he happens to consider to be appropriate at a later date. The principle of finality, that underlies the functus officio principle, weighs against that scope of authority and that type of alteration. Parties have a right to expect that once a matter is determined by a judge, it is over. Our rules of procedure do not envisage that parties will be allowed to reargue matters, except in very narrow circumstances.

20 I acknowledge that there is a fairly broad power, in a judge, to change an order after it has been announced but before it has been signed and entered. Any such change should only be made, however, if it is either technical (e.g. to correct an arithmetic error) or it is necessary to avoid a miscarriage of justice: Clayton v. British American Securities Ltd., 1934 CanLII 229 (BC CA), [1935] 1 D.L.R. 432 (B.C.C.A.) at pp. 440-441….” (Brown at paras. 19-20).

[35] The Plaintiff is a sophisticated litigant involved in multiple complex commercial transactions and related litigation represented by experienced counsel. The parties have entered into numerous agreements and obtained orders dealing with the multiple actions in these proceedings. This is not a case where an uninvolved, unsophisticated client has lost the ability to advance their claims where counsel has been uncommunicative or neglectful in taking the necessary steps to advance the action. Mr. Chahine, a sophisticated client instructing counsel in multiple proceedings, reviewed the Minutes and instructed Mr. McReynolds to proceed and the parties’ counsel explicitly discussed the terms of the Order which the Plaintiff now seeks to vary. Parties must be able to rely on orders obtained in the present circumstances even where, as in Brown, no formal order has been taken out. In this regard, the Court of Appeal’s recent decision in Pierce v. Belows, 2020 ONCA 41 is instructive:

“….The appellant's former counsel was retained, had authority to - and was instructed to - engage in settlement negotiations. No limitation on his authority was communicated to the respondent. Declining enforcement in the circumstances of this case could undermine the certainty that is essential to encouraging meaningful settlement negotiations between counsel” (Pierce at para. 9).

[36] Given my conclusions with respect to the lack of any grounds to rectify the Order, it is not necessary for me to address actual prejudice and I make no findings in this regard. However, I note that the Defendants’ entitlement to rely on finality is stronger given the 11-month delay in bringing this motion and the security of position they gained from the Order which is more pronounced given that the Plaintiff also has potential remedies against its counsel. At the same time, I am not satisfied that the MEC Defendants’ destruction of relevant documents while they were awaiting a response from the Plaintiff with respect to this motion can or should constitute actual prejudice in the circumstances.

[37] I am satisfied that my conclusions above are sufficient to dispose of the motion. However, for completeness, and to the extent that it is necessary for me to do so, I have considered the balance of the parties’ submissions.

[38] I do not accept the Plaintiff’s assertion that Milios v. Zagas, 1998 CanLII 7119 (ON CA), [1998] O.J. No. 812 (C.A.) is applicable. Milios is distinguishable in numerous respects. It was a motion under Rule 49.09 to enforce an accepted offer to settle, not a motion to vary a consent order. Further, the mistake at issue in that case resulted from a misunderstanding of settlement instructions between spouses where the plaintiff’s wife communicated the incorrect instructions to counsel. There is no evidence of any such miscommunication between Mr. Chahine and Mr. Dally and the evidence of mistake is less clear since Mr. Chahine, the primary instructing representative, reviewed the Minutes and advised Mr. McReynolds to proceed. Even applying the test from Milios, while the fact that no order has been taken out favours the Plaintiff, any prejudice to the Plaintiff must take into consideration the existence of the Plaintiff’s potential remedies against counsel in the present circumstances.

[39] Although the Plaintiff did not bring a motion to enforce the Minutes, the Court of Appeal in Deschenes recently considered the law of unilateral mistake. A party to a settlement agreement can obtain rescission on the basis of its own unilateral mistake where the mistake goes to a material term of the agreement, the other party knows or ought to know of the mistake and where it would be unconscionable for the other party to rely on the agreement (Deschenes at paras. 32 and 45). Applied to the present case, while the mistake goes to a material term of the Minutes, there is no basis to conclude that the MEC Defendants knew or ought to have known about the mistake and given all of the circumstances it would not be unconscionable for the Defendants to rely upon the Minutes or the Order.

IV. Disposition and Costs

[40] Order to go dismissing the Plaintiff’s motion. On the agreement of the parties the Order is amended to reflect that the Pace Defendants were unopposed to the Set Aside Motion.

[41] If the parties cannot agree on the costs of this motion, they may file written costs submissions with me not to exceed 3 pages (excluding Costs Outlines).

Released: December 21, 2021

Associate Justice McGraw