Charles Leigh Hogg v. Wealthsimple Inc., Wealthsimple Advisor Services Inc. and Wealthsimple Technologies Inc.

COURT FILE NO.: CV-21-00671017-00CL DATE: 20231102 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST

RE: Charles Leigh Hogg, Plaintiff AND: Wealthsimple Inc., Wealthsimple Advisor Services Inc. and Wealthsimple Technologies Inc., Defendants

BEFORE: Peter J. Osborne J.

COUNSEL: Zachary Pringle, for the Plaintiff Kenneth Dekker and Ardita Sinojmeri, for the Defendants

HEARD: July 6, 2023

Endorsement

The Motion

[1] The Defendants, Wealthsimple Inc. (“WI”), Wealthsimple Advisor Services Inc. (“WASI”) and Wealthsimple Technologies Inc. (“WSTI”) (collectively, “Wealthsimple” or “the Defendants”, unless the context requires individualized identification), move for an order setting aside the ex parte order of Dietrich J., which extended the deadline for service of the Statement of Claim, and costs.

[2] The Plaintiff, Charles Hogg (the “Plaintiff” or “Hogg”), moves by way of cross-motion for an order validating service of the Statement of Claim, nunc pro tunc.

[3] Defined terms in this Endorsement have the meaning given to them in the motion materials unless stated otherwise.

The Action

[4] Between 2018 and 2020, WASI carried on business as a mutual fund dealer and, as a result, was regulated by the Mutual Fund Dealers Association (“MFDA”).

[5] Hogg, the Plaintiff, was a mutual fund investment advisor, originally with Assante Wealth Management. His desire to transfer his business and clients to WASI in 2019 is what gave rise to this action.

[6] Hogg alleges unlawful conduct by the Defendants related to the transfer of the Plaintiff’s client information into what he calls a “holding tank” and what the Defendants refer to as an “online portal”, pending the transfer of his registration from Assante to WASI.

[7] Hogg alleges that this was done in a manner that breached the privacy protections of his clients and resulted in the Defendants gaining access to all of his clients’ private and confidential information, which the Defendants had promised would be withheld until his registration with WASI was effective and client permission was granted.

[8] At the time, WASI offered incoming advisors the use of an online portal to accept client information that would be used to assist in onboarding their clients to WASI once the advisor became registered with WASI and the clients provided their consent. Incoming advisors (in this case Hogg) certified pursuant to an Onboarding Services Agreement that the advisor (Hogg) had the necessary authority and client consent to upload their client information.

[9] Most incoming advisors uploaded the client data to the online portal on their own. Hogg lacked the technological ability to do that, and together with a colleague, he approached an employee of WSTI for assistance. They emailed that employee a series of reports containing client data and subsequently, Hogg gave that same employee his username and password for the Assante system so she could access it on his behalf to obtain additional client information and upload it to the WSTI portal, all in advance of his pending transition to the new firm.

[10] Assante found out about all of this and immediately terminated Hogg on October 28, 2019. On the same day, Assante wrote to WI, with a copy to two regulators – the MFDA and the Ontario Securities Commission - to state in relevant part that WI and certain of its affiliates may be in possession of confidential Assante client information and that certain Wealthsimple employees may have accessed Assante’s internal system in order to facilitate the transfer of client accounts.

[11] Hogg claims that because of all of this, he was prevented from becoming registered with another MFDA dealer, suffered damages as a result, and further that such damages were increased when the Defendants terminated their agreements with him shortly thereafter on November 1, 2019, thereby “abandoning him at a financially and emotionally devastating moment”. He claims damages of $10,500,000.

The MFDA Investigation, the Demand and the MFDA Settlement

[12] A few weeks after receiving the letter from Assante referred to above, the MFDA notified WASI on November 20, 2019, that it was investigating the allegations against Hogg. The investigation was later expanded to include WASI.

[13] On May 18, 2021, counsel for the Plaintiff sent a demand letter to WI demanding payment in respect of damages suffered and threatening the litigation that would later become this action. Plaintiff’s counsel marked that correspondence “without prejudice”.

[14] Six weeks later, on June 30, 2021, counsel for the Defendants replied by letter similarly marked “without prejudice”, denying liability, but stating that he (counsel) was instructed to accept service of a Statement of Claim on behalf of the Defendants if the Plaintiff pursued litigation.

[15] Yet no originating process was served. The Defendants’ evidence on this motion is to the effect that they diarized the expiry of the limitation period on November 1, 2021, being the date that was two years following the termination by the Defendants of the agreements with the Plaintiff.

[16] When that date came and went without any claim having been served, the Defendants conducted a litigation search of the court file on November 1, 2021, and it disclosed that, as described below, a Notice of Action had in fact been issued.

[17] The Defendants subsequently conducted a second litigation search that revealed that a Statement of Claim had been filed shortly thereafter on November 26, 2021.

[18] Yet further still, those documents were not served on the Defendants, and when the six month deadline for service expired in April 2022, the Defendants, who had heard that the Plaintiff had sold his client base to another dealer, assumed that the Plaintiff had decided to simply move on and not proceed with the action.

[19] The problem arose, and these competing motions have now been brought, as a result of the fact that whether or not the action was proceeding, the regulatory investigation was certainly continuing.

[20] On November 15, 2021 (just a few weeks after the commencement of this action), the MFDA investigation of WASI had been escalated from investigations to enforcement.

[21] That investigation continued, with the result that it became clear to WASI by mid-2022 that the MFDA was proceeding, so that its only options would be to either settle the regulatory proceeding or oppose the enforcement proceeding, which it expected would soon be commenced by the MFDA.

[22] WASI and the MFDA begin negotiating possible terms of the settlement of the regulatory proceeding. The MFDA had an internal deadline of September 6, 2022, by which it wanted a settlement agreement, failing which it would commence enforcement proceedings.

[23] Under the MFDA Rules, a settlement requires the registrant (in this case, WASI) to admit to specific breaches of the MFDA Rules and accept an agreed statement of facts relating to those breaches.

[24] WASI proceeded to enter into a settlement agreement with the MFDA, which was formally signed on October 31, 2022, although all material terms were agreed by September 6, 2022.

[25] Pursuant to that settlement agreement, WASI agreed and admitted to various breaches of the MFDA Rules specifically with respect to Hogg and the events described above. Those breaches included the failure to implement an adequate system of controls and supervision over its process for onboarding MFDA members; the failure to prevent staff of an affiliated company from viewing and accessing the system of another MFDA member in order to assist incoming advisors to transfer confidential client information; and other breaches.

[26] The settlement agreement also included specific admitted facts that essentially corresponded with the chronology set out above.

[27] The MFDA was also investigating Hogg. For his part, Hogg elected not to admit any facts and not to enter into any settlement with the MFDA. As a result, the MFDA commenced a contested enforcement proceeding against him, on September 6, 2022, the same day that the material terms of the settlement agreement with WASI were agreed to.

[28] Shortly before the hearing of this motion, Hogg also entered into a settlement agreement with the successor regulator to the MFDA with respect to the events giving rise to this dispute.

Relevant Chronology of this Action

[29] This action was commenced by Notice of Action issued on October 27, 2021, just a few days before the two-year limitation period expired in respect of causes of action that arose on or before November 1, 2019.

[30] The Statement of Claim was filed on November 26, 2021, a month after the Notice of Action was issued.

[31] As a result, the deadline for service of the Notice of Action and Statement of Claim pursuant to Rule 14.08(2) of the Rules of Civil Procedure was six months later, on April 27, 2022.

[32] A few weeks before the expiry of that six-month deadline for service of originating process, on April 14, 2022, the Plaintiff brought an ex parte motion in writing to extend the deadline for service to October 31, 2022 (the “Extension Period”).

[33] On April 22, 2022, Dietrich J. granted that order (the “Dietrich Order”). The Plaintiff served the Notice of Action, the Statement of Claim and the Dietrich Order on the Defendants on October 25, 2022.

The Positions of the Parties

[34] The Defendants seek to set aside the Dietrich Order. They allege that the Plaintiff essentially “laid in wait”, always intending to proceed with this action, but lulling the Defendants into the mistaken belief that he was not proceeding with this action. They allege that the plaintiff waited in the hope and expectation, which turned out to be accurate, that the Defendants would then settle the enforcement proceeding with the MFDA, with the required admissions of fact and admitted breaches of the MFDA Rules for that settlement giving the Plaintiff a significant advantage in this action.

[35] Their position is that all of this was facilitated by the intentional failure of the Plaintiff (through counsel) to make the required full and complete disclosure of relevant facts on the in-writing ex parte motion by which the Dietrich Order was obtained.

[36] The Defendants rely on Rules 3.02, 14.08 and 37.14 of the Rules of Civil Procedure, and the affidavit of Blair Wiley, the Chief Compliance Officer of WASI, together with Exhibits thereto. They submit that the Plaintiff failed to make full and complete disclosure of relevant facts as is required on an ex parte motion, including that: a. in indicating that the reason for the extension of service was because it was likely that the Regulatory Proceedings brought by the MFDA against the Plaintiff would be resolved within the subsequent six months, thereby potentially simplifying the matters at issue in these proceedings, the evidence failed to disclose that:

1. as of April 7 and as of the date of the Dietrich Order, no such proceedings had yet been commenced by the MFDA against the Plaintiff;
2. the MFDA's deadline to either reach a settlement with the Plaintiff or commence proceedings against the Plaintiff would be in early September 2022;
3. that any MFDA proceedings brought against the Plaintiff would be unlikely to be completed by the new date for service that was sought, namely, October 31, 2022; and
4. that, in addition to the Plaintiff, the Defendant WASI had also been subject to a complaint by the Plaintiff's former investment dealer in relation to the matters at issue in this action, it was subject to an investigation by the MFDA, and it was likely subject to a similar deadline to the Plaintiff that required either a settlement or MFDA regulatory proceedings to be commenced against WASI during the six month extension period being requested; b. the evidence failed to disclose that litigation counsel for WASI and the other Defendants had already indicated in writing to the Plaintiff's counsel in June 2021 that he was authorized to accept service of a Statement of Claim on their behalf - thereby simplifying service on the Defendants; and c. the evidence of a lack of prejudice to the Defendants from the order sought was limited to that of a legal assistant with counsel for the Plaintiff who had no knowledge of the matters at issue, and it omitted the Plaintiff's own knowledge of the MFDA investigation of WASI and of the potential prejudice that could occur during the requested six-month delay in service, as outlined above.

[37] The Defendants assert that during the six month Extension Period, they suffered irreparable prejudice, and in particular: a. in failing to serve the Notice of Action and Statement of Claim by the deadline under the Rules and in bringing the motion to extend the time for service without notice to the Defendants, the Plaintiff led the Defendants to believe that he would not be pursuing this litigation; b. during the Extension Period and in reliance on the belief that the risk of litigation by the Plaintiff was over, WASI negotiated and concluded a Settlement Agreement with the MFDA and contractually committed itself to supporting the MFDA Tribunal's approval of that Settlement Agreement rather than proceeding to an opposed MFDA hearing, as the Plaintiff had initially elected to do; c. under the Settlement Agreement with the MFDA, WASI has been required to admit to breaches of the MFDA Rules and a series of Agreed Facts relating to the very subject matter of this action; d. the facts admitted by WASI in the MFDA Settlement Agreement in reliance on its reasonable belief that the Plaintiff’s litigation would not be proceeding will, practically speaking, be binding on it in this action or, at a minimum, be difficult for it to avoid in its defence of this action; and e. in failing to serve the Defendants with his Statement of Claim within the time required by the Rules and in moving for an extension of the time for service without notice to the Defendants, the Plaintiff has gained an unfair advantage in this action. He has been able to choose a course of action with the MFDA where he can admit to nothing while at the same time leading WASI to believe that the litigation risk was at an end, and thereby that it was free to make numerous admissions that are prejudicial to the Defendants in this action.

[38] The Plaintiff relies in this motion on Rules 1.04, 2.01, 3.02 and 14.08(1) of the Rules of Civil Procedure, the Wiley Affidavit, the Affidavit of Kimberly McPeake affirmed February 15, 2023, and the Affidavit of Hogg affirmed on the same date, with the Exhibits attached respectively thereto. [^1]

[39] The Plaintiff submits that the Defendants will suffer no prejudice if service of originating process is validated, nunc pro tunc, or in the alternative, the time for service of the Notice of Action and Statement of Claim is extended until this motion was disposed of. The Plaintiff submits that: a. the lack of prejudice flows from the admissions of the Defendants that they were aware, since approximately November 1, 2021, that the Plaintiff had commenced this action against them and that specifically:

1. they conducted a litigation search on November 1, 2021 to determine, and admittedly discovered, that the Plaintiff had preserved his claims against them within the limitation period by issuing his Notice of Action on October 27, 2021; and
2. approximately one month later, the Defendants conducted a second litigation search to determine, and admittedly discovered, that the Plaintiff had filed his Statement of Claim by November 26, 2021; b. the Defendants admit that they diarized April 26, 2022 as the deadline for service of the Notice of Action and Statement of Claim, and relied upon the failure of the Plaintiff to effect service by this date to settle the MFDA regulatory proceeding commenced against WASI; c. the Defendants could have, but did not:
3. conduct a third litigation search after April 22, 2022, which would have revealed the Dietrich Order; or
4. asked the Plaintiff’s lawyers whether the plaintiff intended to pursue this action; with the result that the Defendants cannot allege prejudice by their failure to do something that they reasonably could have done.

[40] The Plaintiff further submits that WASI did not actually sign the binding settlement agreement with the MFDA until October 31, 2022, whether or not the material terms of the settlement agreement were in fact agreed to on September 6, 2022. Since the Defendants were served with the Notice of Action and Statement of Claim pursuant to the Dietrich Order on October 25, 2022, some six days before the settlement agreement was executed, they could have avoided the prejudice about which they now complain.

[41] In any event, the Plaintiff submits that the settlement agreement itself is not prejudicial, since even if it is admitted in the trial of this action (the Plaintiff submits that the admissibility of the agreement is not clear), the terms of the settlement agreement include privative language that “purports to prevent Mr. Hogg from relying on the facts and other admissions therein for the purpose of these proceedings” (Plaintiff’s factum, para. 4(e)). The nature of the “prejudice” alleged by the Defendants here is inconsistent with that considered in the jurisprudence relevant to these motions, which relates mostly with the destruction of documents and lost witnesses.

The Legal Test

[42] Pursuant to Rule 39.01(6) of the Rules of Civil Procedure, where a motion is made without notice, the moving party shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion.

[43] Pursuant to Rule 37.14(2) of the Rules of Civil Procedure, the court may set aside or vary an order obtained on motion without notice, on such terms as are just.

[44] The onus on a moving party to make complete disclosure is “heavy” and “very strong”. As the party opposite interest is not given the opportunity to present evidence or challenge the evidence of the moving party, “the moving party must ensure that the facts before the court are complete, true and plain”: Horrocks v. McConville, 2021 ONSC 522 (“Horrocks”), at para. 11.

[45] The duty of disclosure applies to an ex parte motion to extend the time to serve a Statement of Claim. The failure to comply is fatal and it does not matter whether or not the plaintiff was intending to mislead the court: Rosenhek v. Kerzner (1997), 13 C.P.C. (4th) 381 (Ont. C.J. Gen. Div.) (“Rosenhek”), aff’d Rosenhek v. Kerzner (1998), 28 C.P.C. (4th) 15 (Ont. C.A.).

[46] Facts that are material are those of which the court must be made aware in arriving at a decision, the non-disclosure of which may have affected the approach of the court to the motion, made the decision doubtful, or affected the outcome of the motion. On an ex parte motion, the test as to whether full and fair disclosure is made turns on whether the omitted disclosure “might” have impacted the original granting of the order: Horrocks at para. 12; and Metropolitan Toronto Condominium Corp. No. 1033 et al v. Toronto Hydro-Electric System Limited et al, 2019 ONSC 691, 90 C.C.L.I (5th) 327, at para. 20.

[47] The time for service of the claim should not be extended if to do so would prejudice the defendants. It is the plaintiffs who bear the initial onus of showing that the defendant will not be prejudiced by the delay: Chiarelli v. Wiens (2000), 46 O.R. (3d) 780 (C.A.) (“Chiarelli”) at para. 14. Where there is further evidence of actual prejudice to the defendant from the delay, the denial of an extension of time is appropriate: Pham v. Ravaliya, [2014] O.J. No. 6651 (S.C.), at paras. 30 – 36.

The Evidence on the Motion to Extend Time for Service

[48] On the motion to extend time for service of the Statement of Claim resulting in the Dietrich Order, the Plaintiff relied, exclusively, on the Affidavit of Kimberly McPeake affirmed on April 14, 2022 (the “McPeake Affidavit”). It comprises seven paragraphs in total.

[49] As stated above, Ms. McPeake is a legal assistant with the firm of counsel to the Plaintiff. She states in her affidavit that: “I am a legal assistant with [the firm] … and as such have knowledge of the matters contained in this affidavit.” There is no reference to information or belief nor to the source of any such information or belief.

[50] The McPeake Affidavit attaches as exhibits the Notice of Action in the Statement of Claim, references the deadline for service of April 27, 2022, and then states the following in relevant part at paras. 4 - 6: Since January 27, 2020, the Plaintiff has been involved in a regulatory enforcement proceeding initiated by the [MFDA] regarding the events giving rise to the Plaintiff’s claims against the Defendants (the “Regulatory Proceeding”). It is likely that the Regulatory Proceeding will be resolved within the next six months, such that there may be no need for the Plaintiff to pursue some of his claims in the within action against the Defendants, thereby potentially simplifying the matters at issue in these proceedings. I am not aware of any reason that an order extending the time for service of the Statement of Claim will cause prejudice to any party.

[51] No other evidence was filed by the Plaintiff on the motion, which was submitted in writing, on an ex parte basis.

[52] Dietrich J. properly reviewed the motion record and granted the Dietrich Order on the basis of the evidence as filed. Motions of this nature are filed in this court and granted, on an in-writing ex parte basis, every day.

Should the Dietrich Order be Set Aside?

[53] In my view, the Dietrich Order should be set aside.

[54] I cannot conclude that the disclosure made by the moving party was complete, true and plain. In fact, there was much more going on than was disclosed in the simple affidavit from the legal assistant with the firm of counsel to the Plaintiff.

[55] In this case, in my view, the required disclosure included, at a minimum: a. the fact that the Defendants had retained counsel; b. the fact that Defendants’ counsel had contacted counsel for the Plaintiff, such that Plaintiff’s counsel knew that counsel for the opposing parties had been retained and was involved; c. the fact that Defendants’ counsel had formally confirmed their instructions to accept service of a statement of claim if an action were commenced; and d. the fact that the regulator, the MFDA, was investigating the conduct of the Defendants related to the very issues giving rise to this action.

[56] I recognize that motions to extend the time for service are inherently ex parte [^2], and there was no requirement, for example, to have served Defendants’ counsel. Still, in the particular circumstances of this case and given the ongoing MFDA proceedings, the disclosure was in my view inadequate.

[57] It is not an answer for the Plaintiff to say that the failure to disclose the agreement of counsel for the Defendant to accept service of a claim was justified because the letter from counsel for the Defendant was marked “without prejudice”. It responded to the “without prejudice” demand letter from the Plaintiff. The objective fact remains: counsel for the Defendants was involved and confirmed to counsel for the Plaintiff their instructions to accept service of a claim.

[58] Counsel communicated with one another and, as this court expects, had a cooperative and cordial relationship (which to their credit, continued) within which counsel confirmed instructions to accept service of originating process, which would have avoided the unnecessary cost of effecting personal service that would have otherwise been required.

[59] Courts have held that a relevant consideration on the issue of whether an extension is appropriate can be the presence of evidence as to whether the defendant was hard to locate or has evaded service: Beckwith v. Salmon, 2014 ONSC 3528, at para. 3. Here, the (undisclosed) evidence was exactly the opposite.

[60] Further in my view, my conclusion that the Plaintiff ought to have disclosed on the ex parte motion the fact of the ongoing MFDA investigation into the conduct of the Defendants is reinforced by the fact that the Plaintiff made specific reference in the McPeake Affidavit to the MFDA investigation into the conduct of the Plaintiff himself.

[61] The purported basis for the motion as disclosed to the court was the fact that that investigation was centrally relevant to the decision of the Plaintiff to continue the action at all (otherwise he could have simply served originating process and not sought any extension), and also to the decision of the Plaintiff to narrow the issues in the action by electing not to proceed with some of his claims, which decision was dependent on a possible resolution of the MFDA investigation. That was the very basis set out in the McPeake Affidavit for the extension request.

[62] It is incongruent for the Plaintiff to at once have referred to the MFDA investigation and its possible resolution (then still pending) as the basis for the request for the extension but yet have declined to disclose to the court the simultaneous investigation into the conduct of the Defendants arising out of the very same facts.

[63] Ms. McPeake states in her second affidavit filed on this motion that counsel was unaware of regulatory proceedings by the MFDA against WASI since there was no public disclosure by the MFDA of the investigation into WASI until September 6, 2022, when the MFDA made public disclosure of the settlement agreement on its website.

[64] In his affidavit filed on this motion, the Plaintiff Hogg himself is completely silent on the point. His affidavit states, in total, that he is not aware of any prejudice that would result to the defendants since he is not aware of any documents or witnesses no longer available.

[65] It is difficult to accept in all the circumstances that Mr. Hogg was not acutely aware of the investigation into the conduct of the Defendants alongside the investigation into his own conduct arising out of the very same facts when he knew that Assante had notified the MFDA, and, as disclosed in the McPeake Affidavit filed on the motion to extend the time, he had been involved in his own regulatory enforcement proceeding since January 27, 2020 “regarding the events giving rise to the Plaintiff’s claims against the Defendants”.

[66] The Statement of Claim itself pleads at paragraph 7 that: “Mr. Hogg was relying on … the fact that WASI was registered with the MFDA, so the Defendants were at risk of any regulatory infraction in the event their processes were noncompliant.”

[67] Moreover, there is no basis disclosed in the McPeake Affidavit for the statement that the Regulatory Proceeding would be resolved within the next six months. Nor was there any basis for the statement that there may be no need for the Plaintiff to pursue some of his claims in the action if the Regulatory Proceeding was in fact resolved. In fact, the Statement of Claim, which is attached to the McPeake Affidavit as Exhibit “B”, contains no pleading about the MFDA Regulatory Proceeding whatsoever. It is not referred to in the pleading at all.

[68] Finally on this point, in my view it was not appropriate in the particular circumstances of this case for the Plaintiff to have relied exclusively on an affidavit from a legal assistant with the law firm of counsel for the Plaintiff on the original ex parte motion before Dietrich, J. and to not have filed an affidavit from the Plaintiff himself. In fairness to that legal assistant, her knowledge may very well have been limited and it may be entirely accurate for her to say that she was not aware of any prejudice. However, the test of course is whether the Plaintiff was aware of any prejudice, and here the absence of any evidence from him further reinforces my conclusion about the inadequacy of disclosure.

[69] For all of those reasons, I find that the Plaintiff did not provide the requisite level of full, true and plain disclosure on the ex parte motion in the particular circumstances of this case.

[70] That alone is sufficient to dispose of this motion pursuant to Rule 39.01(6) of the Rules of Civil Procedure. As noted by the courts in Horrocks and in Rosenhek, it is irrelevant whether the plaintiff intended to mislead the court, and there is no requirement for a defendant to show that the result on the ex parte motion would have been different. The defendant must show only that it might have been different.

[71] Moreover, the subjective belief of a defendant that the plaintiff was not pursuing litigation based on the failure to serve a statement of claim within the required six months is not a factor relevant to the test of whether the time for service should be extended, or whether an ex parte order extending the time for service should later be set aside. Nor is the subjective belief of the plaintiff at the time the motion is brought as to whether the defendant would be prejudiced by the order sought relevant to the test. Rather, the test is whether prejudice would in fact result. For that reason, the factual matrix in which the extension was sought informs the universe of material facts that are required to be disclosed to the motions judge being asked to grant the order.

[72] However, I also conclude that the Defendants did in fact suffer prejudice as a result of the Dietrich Order and the insufficient disclosure upon which it was based. For that reason also, it ought to be set aside.

[73] In his brief five paragraph affidavit filed in support of this motion, Hogg states that he is not aware of any prejudice to the Defendants since he is not aware of any documents or witnesses that became unavailable to the Defendants. He makes no statement concerning the MFDA settlement by WASI or whether he was aware of the MFDA investigation into WASI (presumably at least prior to September 6, 2022). Indeed, as stated above, he does not refer to any MFDA proceedings (whether against him or the Defendants) at all.

[74] In many cases where the court is being asked to extend the time for service of a claim, or to set aside an order extending the time, the prejudice arises from the unavailability of documents or witnesses who were previously available, just as the Plaintiff submits on this motion. The evidence of the Plaintiff, in support of his submission, is to the effect that there are no documents or witnesses that are now unavailable, with the result that the motion of the Defendants should be dismissed in his motion allowed.

[75] However, I reject the notion that the nature of the requisite prejudice to be suffered by a defendant is limited to the unavailability of documents or witnesses. In my view, the nature of the prejudice can be of any nature and may or may not be related to the availability of documents and witnesses, even though that is usually the case. The test is much broader than is suggested by the Plaintiff here, and prejudice could be completely unrelated to the availability of documents or witnesses.

[76] I think it unwise and unnecessary to interpret the test so narrowly, or to attempt to define, in advance, the nature of the prejudice that might satisfy the test. The prejudice is inherently fact specific and unique to each case. That is why an analysis of what constitutes true and plain disclosure necessarily has reference to the factual matrix and circumstances within which the issue in a particular case arises.

[77] Here, the prejudice arises from the fact that the Defendants entered into the MFDA settlement, voluntarily admitted facts and breaches of the MFDA Rules, and those admitted facts and breaches materially impair their ability to defend this action.

[78] This prejudice is real, even if evidence about the MFDA enforcement proceeding may not be admissible, in whole or in part, in this action (a point in respect of which, to be clear, I make no determination). As observed by the Divisional Court in Hill v. Gordon-Daly Grenadier Securities et al (2001), 56 O.R. (3d) 388 (Div. Ct.) (“Hill”) at paras. 14 and 26: Quite apart from the fact that the appellants had agreed that they would not take a public position contrary to their admissions in the settlement agreement, it is offensive to one’s sense of justice and an affront to common sense to prevent the plaintiff from proving, on a motion to certify a class proceeding, that which the defendants have already admitted in a public forum before a statutory body acting in the public interest. Viewed from the appellants’ perspective, it is not clear how the appellants could have entered into a public agreement to admit wrongdoing in a public forum and later claim that their admissions should be protected from civil consequences. Their admissions are now in the public domain and the expectation that the respondent and other members of the proposed class would not be at liberty to rely on their admissions in a subsequent civil proceeding is patently unreasonable. We say unreasonable because the respondent and members of the proposed class were not signatories to the settlement agreement nor did they have standing before the Commission. That being the case, their rights could not be adversely affected by the unilateral or bilateral actions or words of either the appellants or the Commission.”

[79] I also observe that the Plaintiff could have addressed the issue of prejudice entirely by giving in undertaking that, if the Dietrich Order were not set aside, he would not seek to rely on the Defendants’ settlement agreement with the MFDA or the admissions contained therein. He has not elected to do that, as is his right, but he must therefore address the prejudice argument.

[80] The Plaintiff also argues that the Defendants could have avoided the prejudice about which they now complain by doing two things: (1) conducting a third litigation file search just prior to entering into the settlement agreement with the MFDA, which would have revealed the Dietrich Order; and (2) refusing to sign the settlement agreement on October 31, when in fact they had been served with originating process six days earlier.

[81] As to the first point, in my view the Defendants were not cavalier or careless, and it is unfair to them, in the particular circumstances of this case, for the court to conclude that they were the authors of their own misfortune. They responded, through counsel, as soon as the original demand letter was received. They denied liability or wrongdoing, but counsel offered to accept service of the claim. They heard nothing further. They subsequently conducted two litigation court file searches that revealed nothing, since nothing relevant had occurred.

[82] Most fundamentally, however, the obligation on counsel bringing a motion on an ex parte basis to provide full true and plain disclosure is not compromised or minimized by a duty on the part of a defendant, wholly unaware of the motion, to continually check the court file to see if any fresh steps have been taken. The duty of disclosure is a standalone duty, inherent in the fact that the motion is brought without notice.

[83] As to the second point, I accept that the settlement agreement with the MFDA was not in fact executed until a few days after the Defendants were served with the claim.

[84] However, the evidence on which the Defendants rely, in the Affidavit of Blair Wiley sworn January 27, 2023, was not challenged, and I accept it. The evidence of Mr. Wiley, the Chief Compliance Officer of WASI, on this point is clear. He acknowledges that the settlement agreement was not formally signed until October 31, 2022, but states that: [A]ll of its terms were agreed upon by September 6, 2022, including a provision requiring WASI to consent to the order approving the settlement and to support the request by MFDA staff for approval of the Settlement Agreement by the MFDA Tribunal … The delay in signing the Settlement Agreement was related solely to confirming and finalizing nonmaterial facts relating to WASI’s current registration status (paras. 7 and 8 of the Settlement Agreement) and [accurately] confirming and setting out the status of certain of the client data in the possession of WSTI (para. 38 of the Settlement Agreement). Those two remaining factual issues were finalized by October 15, 2022. [^3]

[85] In addition, the evidence of Mr. Wiley was to the effect that the MFDA established an internal deadline by which the parties must have settled or be close to settling, failing which the MFDA will issue a Notice of Hearing (see above, at para. 30). The Plaintiff accepts and agrees that the MFDA establishes such internal deadlines (see Plaintiff’s factum at para. 43).

[86] In this case, that internal deadline was September 6, 2022, before service of originating process. I accept the position of the Defendants that they were accordingly under pressure to resolve the matter or proceed to a contested hearing.

[87] For all of these reasons, I find that the Defendants suffered prejudice as a result of the inadequate disclosure leading to the Dietrich Order such that it should be set aside. In so concluding, I recognize the preference of the courts generally to determine matters on their merits. That is balanced against the need for finality and certainty which underpins many of the Rules and the deadlines for, among other things, service of originating process.

[88] In my view, setting aside the Dietrich Order in the particular circumstances of this case does not represent an overly technical application of the Rules, but rather a balancing of the competing interests and objectives.

Disposition

[89] The motion of the Defendants is allowed and the Dietrich Order is set aside. The cross-motion of the Plaintiff for an order validating service of the Statement of claim nunc pro tunc or in the alternative, an order extending the time for service, is dismissed.

[90] Each of the Plaintiff on the one hand and the Defendants on the other hand seeks costs, and each has filed a Costs Outline.

[91] The Plaintiff seeks costs in the event that it was successful on the motions. The Defendants seek costs in any event of the result, on the basis that the Dietrich Order was made without notice so that this motion represented their first opportunity to be heard in relation to the extension for service. In the alternative, the Defendants submit that no order as to costs should be made.

[92] The Plaintiff’s Costs Outline reflects substantial indemnity costs of $30,972.25 and partial indemnity costs of $23,545.25. The Defendants’ Cost Outline reflects costs on a substantial indemnity basis of $22,143.14.

[93] Both Outlines are inclusive of fees and disbursements, but exclusive of HST.

[94] Pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, costs are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[95] Rule 57.01 of the Rules of Civil Procedure provides that in exercising its discretion under s. 131, the court may consider, in addition to the result in the proceeding (and any offer to settle or contribute), the factors set out in that Rule.

[96] The overarching objective is to fix an amount that is fair, reasonable, proportionate and within the reasonable expectations of the parties in the circumstances: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.).

[97] The Defendants were successful on the motions. They are entitled to their costs. Exercising my discretion and considering the Rule 57.01 factors in the context of this matter, I fix costs payable by the Plaintiff to the Defendants in the amount of $14,000, inclusive of fees, disbursements and HST, which amount I find to be fair and reasonable in all the circumstances.

[98] The costs are payable by the Plaintiff to the Defendants within 60 days.

[99] Order to go to give effect to these Reasons.

Osborne J.

Footnotes

[^1]: To be clear, and as discussed below, the only evidence filed by the Plaintiff in support of the motion to extend the time for service was the earlier affidavit of Kimberly McPeake. Ms. McPeake is a legal assistant with the firm of counsel to the Plaintiff. [^2]: See, for example, Qincome Services Corp. v. Magnet, 2017 ONSC 4468, at para. 26. [^3]: Affidavit of Wiley, paras. 33 and 34.