Court File and Parties

Court File No.: CV-19-621470
Released: 2025-01-28
Court: Superior Court of Justice - Ontario

Plaintiffs: Blaine Matthew Scott and Barbara Jean Scott
Defendants: Robert Marchand, Kim Marchand and Marchand Construction Inc.

Before: Jolley
Counsel:

• Raphael Fernandes, counsel for the moving plaintiffs
• Robert Kalanda, counsel for the responding defendants

Heard: 8 January 2025

Reasons for Decision

Overview

[1] There are three motions before me. The plaintiffs bring a motion to extend the time for service and then validate service of their statement of claim on the defendants Robert Marchand and Kim Marchand. Before the deadline to set the action down for trial, the defendants also served a motion for a status hearing, seeking a timetable and an extension of time to set the action down for trial. The defendants bring their own motion to dismiss this action for delay.

Motion to Validate Service

[2] The corporate defendant Marchand Construction Inc. was served with the statement of claim on 25 February 2020. An employee of Marchand Construction advised the plaintiffs’ process server that as of 27 February 2020, the defendant Robert Marchand, had received the statement of claim. Mr. Marchand conceded on his cross examination that the statement of claim had come to his attention at least by 2 March 2020. By 4 March 2020, he was instructing the company’s lawyer to respond to the claim on behalf of the company, of which he was the directing mind.

[3] If Mr. Marchand was served on 27 February 2020, then the time for service need not be extended as an order of McEwen, J. provided the plaintiffs until 28 February 2020 to serve him. I am inclined to find that the claim had come to Mr. Marchand’s attention by 27 February 2020, consistent with the information from his office and with the fact that his company had been served a few days before then. If the claim did not come to his attention until 2 March 2020, I would grant the extension of these few days as I have not been shown any prejudice that would arise from that weekend extension (Friday February 28 to Monday March 2, 2020).

[4] The defendants concede that the statement of claim came to the attention of Kim Marchand by at least 8 June 2020. On that date, counsel for Marchand Construction advised plaintiffs’ counsel that Mr. and Mrs. Marchand intended to make oral argument on the service motion. Mrs. Marchand has not led any evidence of prejudice that would flow from granting an extension for service from 28 February 2020 to 18 June 2020. There is no evidence that memories faded in that intervening short period, such that the motion to extend the time for service should be denied. The defendants do argue that documents are no longer available but there is no evidence that any documents were lost between February 28 and March 2, in the case of Robert Marchand or even between February 28 and June 18, in the case of Kim Marchand.

[5] The plaintiffs have demonstrated that the claim “came to the notice of the person to be served”, in the language of rule 16.08(a), such that the court may make an order validating service on both personal defendants. Despite being served, the defendants argue that I should not validate service on the basis that the claims against them are clearly not viable as they are statute barred.

[6] By way of background, Rob Marchand Construction Ltd., an earlier company owned by Mr. Marchand, was found liable to the plaintiffs, in an amount to be determined at a subsequent trial. Before the trial could take place, the company declared bankruptcy. The trustee in bankruptcy valued the plaintiffs’ claim at $402,633.16.

[7] The defendants argue that the plaintiffs’ claim is derivative of the claim of the trustee in bankruptcy of Rob Marchand Construction Ltd. They argue that plaintiffs are bound by the knowledge of the trustee in bankruptcy for the purposes of the limitation period to commence an action against Robert and Kim Marchand and that the plaintiffs’ knowledge of a potential claim is irrelevant. They argue that the bankruptcy trustee was aware by February 2017 that the personal defendants had withdrawn funds from the corporate account, that the trustee was aware by 27 January 2017 of a potential claim against the personal defendants concerning the contracts assigned to the defendants or their new company, and was aware by 18 April 2017 of a potential claim against the personal defendants for providing services under value and carrying out work for third party customers. As a result, the defendants argue that plaintiffs’ action commenced on 6 June 2019 for relief arising from these complaints, is out of time.

[8] The plaintiffs argue that neither they nor the trustee could have known of the potential claim against the personal defendants until they received and evaluated the accounting report in the related bankruptcy proceedings. Even at that point, the plaintiffs were unable to commence this action until they received a court order under section 38 of the Bankruptcy and Insolvency Act (“s.38 BIA order”) allowing them to do so.

[9] The accounting report from Rob Marchand Construction Ltd. was dated 8 June 2017 and was received by the trustee shortly thereafter and by the plaintiffs in July or August 2017. As part of that reporting process, the trustee received the final statements and shareholders’ loan documents on 4 July 2017. The plaintiffs argue that the trustee was not in a position to determine whether there was a claim against the Marchands until that time. There is evidence in the record before me to support that position, as the trustee agreed on cross examination that he was not in a position to determine whether there was a claim against the defendants for improper withdrawals until he had the final accounting in July 2017.

[10] The plaintiffs argue that, as the trustee did not determine whether there was a potential claim against Mr. Marchand until July or August 2017, the plaintiff’s claim against him issued 6 June 2019 was within the limitation period. The claims against Mrs. Marchand were potentially discoverable on 16 November 2017 when the trustee finalized its position concerning pursuing claims against her. This claim against her was made on 28 October 2019, again, within any limitation period.

[11] Alternatively, they argue that any limitation period could not run until they were authorized by the court to commence a proceeding. The orders issued under section 38 of the Bankruptcy and Insolvency Act (“BIA”) (the “s.38 BIA orders”) assigning the trustee in bankruptcy’s claim against Mr. and Mrs. Marchand to the plaintiffs were made June and October 2019, respectively.

[12] Whether the limitation period runs from the date of the trustee’s knowledge, the date of the plaintiffs’ knowledge or the date of the s.38 BIA orders, the plaintiffs argue that the action, commenced 6 June 2019, and amended on 28 October 2019 to include Kim Marchand, was within the applicable limitation period.

[13] They argue that, at a minimum, the limitation period raises a triable issue. The action should not be effectively halted on that basis on a motion to validate service.

[14] I find that it is not appropriate to deal with a limitation period argument of this complexity on a motion to validate service, particularly where the defendants have now belatedly admitted that they had notice of the claim almost five years ago. However, if I am incorrect in that regard, I find there is a strong argument that the limitation period did not start to run at least until 8 June 2017 as it concerned Mr. Marchand. There is a further tenable argument that the limitation period did not begin to run until 4 June 2019 for Mr. Marchand and 28 October 2019 for Mrs. Marchand as the plaintiffs were not authorized until then to bring this action. On 4 June 2019, the court granted the s. 38 BIA order allowing the plaintiff to pursue the claims against Mr. Marchand. The claim was then issued 6 June 2019. A second s. 38 BIA order was granted on 28 October 2019 allowing the plaintiffs to pursue claims against Kim Marchand and adding her as a party to this action. This claim was amended that same day.

[15] While the defendants disagree that the plaintiffs were precluded from taking steps to commence this action until the trustee declined to pursue it and until the plaintiffs obtained a court order transferring the causes of action to them, these are triable issues which the defendants are at liberty to plead a limitations defence in response to this action.

[16] Service of the statement of claim on Robert Marchand is hereby validated as of 27 February 2020. The date for service of the statement of claim on Kim Marchand is hereby extended to 18 June 2020 and validated as of that date.

Plaintiffs’ Motion for a Status Hearing and Defendants’ Motion to Dismiss for Delay

[17] On their motion for a status hearing, the plaintiffs have the burden of providing a reasonable explanation for the delay and demonstrating that, if the action proceeds, the defendants will not suffer non-compensable prejudice.

[18] On their motion to dismiss for delay, the defendants must demonstrate that dismissal of the action would be unjust (rule 24.01(2)).

[19] The defendants argue that the action should be dismissed due to the plaintiffs’ inordinate delay in moving the action forward. After five years, pleadings have not closed. This motion to deal with service was originally brought in June 2020, at a point when the statement of claim had, now admittedly come to the attention of the defendants, but was not heard until January 2025. I note that had the defendants simply admitted that the claim had come to their attention back in June 2020, the action could have proceeded in the usual course, with the defendants pleading a limitations period defence and bringing a motion for summary judgment, had they chosen to do so.

[20] The plaintiffs’ delay in bringing this motion to validate service was lengthy. The motion was originally brought on 11 June 2020. The defendants served their responding materials in July 2020 and cross examinations were completed in March 2021. The plaintiffs sought to examine the trustee and the defendants, but the defendants refused. Ultimately, in July 2022, the trustee in bankruptcy agreed to be cross-examined and that took place in August 2022.

[21] When the plaintiffs then started inquiring about motion dates in the fall of 2022, they received availability in September 2023. Those dates were quickly taken and new dates were given in December 2022 for January 2024. Instead of booking the motion, even though fourteen months out, the plaintiffs spent time in March 2023 trying to negotiate moving the action to Barrie for a quicker date. The defendants refused to consent to the transfer. There is admittedly no explanation for the delay from March 2023 to April 2024, when the plaintiffs finally booked the validation of service motion for 5 July 2024. After the plaintiffs booked that date, the defendants advised that they were going to bring a cross motion to dismiss the action, so the July 2024 date was then also lost. In setting a date for both motions, I ordered that delay only be considered to July 2024, as the plaintiffs had booked and ready to argue this service motion at that time.

[22] The delay from March 2023 to April 2024 lies at the plaintiffs’ feet. Missteps in putting the motion on a list other than mine when I was seized of it and then trying to negotiate a transfer to Barrie significantly delayed something that could have been heard in September 2023. While the plaintiffs should have secured a date much sooner than they did, I do not lose sight of the fact that the defendants knew they had notice of the claim and still chose to require the plaintiffs to bring this motion rather than concede service and move the action forward either on the limitation period issue or on the merits.

[23] Until the motion was disposed of, the plaintiffs could not take any steps to move the action forward. The defendants suggested during this motion that the plaintiffs should have examined the corporate defendant for discovery while waiting to deal with the individual defendants. I would have been surprised if the corporate defendant would have agreed to the approach the defendants now proffer. There would undoubtedly have been objections to any questions beyond Mr. Marchand’s knowledge as a director of the corporation and disputes about whether a question veered into his personal knowledge. In any event, I find that such an approach would have been inefficient as Mr. Marchand would have had to testify a second time in his personal capacity.

[24] The plaintiffs argue that the defendants will not suffer non-compensable prejudice as they have had actual notice of the claim against them for almost five years now. The defendants argue that they are unable to defend themselves as they no longer have financial records involving the company going back to 2014 to 2017. I do not accept this argument. The corporate defendant has had the claim since 25 February 2020. Mr. Marchand has belatedly admitted that he has had the claim since late February or early March 2020. At that time, the defendants would have been aware of the issues raised in the claim and would have known what documents would be relevant and necessary to defend themselves. It is difficult to accept that they did not preserve those documents in the previous five years and yet ask the court to dismiss the action on the basis that they did not preserve those documents, to their own prejudice.

[25] I am satisfied that the plaintiffs have a reasonable explanation for the delay and that the defendants will not suffer non-compensable prejudice should a timetable be put in place.

[26] With respect to the defendants’ motion to dismiss for delay, I have found that the delay, while lengthy, was contributed to by both parties. Further, it was not due to the intentional conduct of the plaintiff. There is also an explanation for it.

[27] The defendants argue that the action should be dismissed as pleadings are not even complete after five years. While this is true, much of this delay has been caused by the defendants’ refusal to admit that the claim came to their attention either during the time provided by McEwen, J. or very shortly thereafter. Had the defendants conceded that the statement of claim had come to their attention in the spring of 2020, they could have filed a statement of defence, assembled the relevant documents and the parties would have been well on their way to examinations for discovery. I find that the delay, while unfortunate, is not inexcusable and has been explained. It would be unfair to dismiss the action as a result of the unnecessary wrangling on the motion to validate service.

[28] The plaintiffs sought the status hearing before the expiry of the five year deadline to set the action down for trial and have advised that they are prepared to abide by an aggressive and strict timeline to move this matter forward.

[29] As to prejudice, the third branch of the test set out in Langenecker v. Sauve, 2011 ONCA 803, the defendants argue that they do not have to prove they are prejudiced by the delay for the court to dismiss an action for delay (Barbiero v. Pollack, 2024 ONCA 904). The facts of this case do not come close to the facts in Barbiero. On the facts of Barbiero, it was reasonable to presume that a litigation delay of over 20 years constituted sufficient prejudice per se to warrant a dismissal for delay, not simply a rebuttable presumption of prejudice. I have found the delay here not to be inordinate. A motion seeking an order to dismiss still involves an exercise of discretion and a review of the specific facts. Allowing this action to proceed does not, in my view, demonstrate a tolerant attitude toward delay. What it does is recognize that the delay is not reflective of a “litigation culture” but perhaps reflective of a strategy that saw the defendants oppose a motion that should have been consented to back in 2020.

[30] If the defendants must demonstrate prejudice, they rely on the lack of historical financial records. This argument is dismissed for the reasons set out in paragraph 24, above.

Conclusion and Next Steps

[31] The plaintiffs’ motion for a status hearing is granted. The defendants’ motion to dismiss the action for delay is dismissed.

[32] The parties shall have 30 days from the date of this decision to agree on a timetable. The aim will be to set the action down for trial by 31 January 2026. If they are unable to agree on a timetable, they are each to submit their proposed timetable to my assistant trial coordinator Ms. Meditskos and I will impose a timetable for the remaining steps in this action.

[33] If they are unable to agree on the costs of this motion, they may provide costs submissions not more than two pages in length at the same time.

Jolley
Date: 28 January 2025