Legal Blog

Stall

On occasion we read of, and sometimes experience, a litigant (usually the defendant) or its lawyer or both doing everything in their power to either stall the litigation or to increase the other party’s costs. When we read a decision in which the malefactors get a well-deserved comeuppance, we experience a wave of satisfaction. One such decision is set out in Falcon Lumber Limited v. 2480375 Ontario Inc. (GN Mouldings and Doors) 2020 ONCA 310. Ritchie Linton was counsel for the aggrieved plaintiff.

Action

It started as a simple action: the plaintiff sold building materials to defendant corporation #1 (Corp1), was not paid $131,700, and commenced its action March 31, 2016 against Corp1 and the individual (Owner) who owned and controlled Corp1. One year later, Owner incorporated corporation #2 (Corp2) and one month later, Corp1 granted a security interest to Owner. Five months later, Owner alleged Corp1 had defaulted under the GSA and appointed a private receiver over Corp1’s assets. In just two days, the receiver privately sold to Corp2 all of Corp1’s assets for $147,000. Two years after the March 2016 action, Owner incorporated corporation #3 (Corp3) and, one month later, Corp2 sold to Corp3 for $580,000 all of Corp1’s original assets.

The plaintiff did not know of any of these corporate shenanigans until it obtained limited production in the action. Ultimately, it amended its statement of claim, which had already included Owner and Corp1, to add Corp2 and Corp3. The plaintiff alleged that the 2017 and 2018 transactions were intended to defeat its claim as Corp1’s creditor to Owner’s personal financial benefit.

Tactics

The plaintiff, sought documentary production and discovery of the defendants. They did not appear for the first examination and the plaintiff obtained a consent order for discoveries to take place in October 2016. Not to be outdone, Owner stated that he intended to bring a motion returnable in April 2007 for summary judgment to dismiss the action against him personally.

Owner attended for discovery personally and on behalf of Corp1 in October 2016. He swore an affidavit of documents listing only the plaintiff’s invoices and refused to produce any other documents. Linton adjourned the examination and brought a motion. In July 2017, the defendants were ordered to produce all relevant documents, including those relevant to the issue of unjust enrichment and the request to pierce the corporate veil.  The order included a host of financial disclosure.

Owner’s motion for summary judgment had been adjourned to August 2017. Owner was cross-examined in June 2017 and refused to answer many questions or honour his undertakings. The summary judgment motion was adjourned and Linton brought his own motion regarding the undertakings and refusals. The defendants were ordered to answer questions and produce documents by September 2017.

Owner’s examinations continued in March 2018. Owner attended, but did not make full production and, again, Linton adjourned the examinations. The plaintiff brought another motion for production, returnable with the summary judgment motion in May 2018. The motion judge adjourned the summary judgment motion because of the defendants’ non-production and directed Owner’s examination in June 2018. The examination did not take place because the parties could not agree whether Owner’s answers would bind Corp1.

The matter was adjourned to December 2018, at which time the same motion judge, who also dealt with the matter thereafter, directed the completion of productions. By January 2019, at a subsequent case conference, the motion judge made a further order for a better affidavit of documents and examinations to be held in February 2019. Following the case conference, the defendants produced some, but not all, documents. On the examination, the defendants produced more documents. Linton refused to be ambushed with new documents or to conduct an examination in dribs and drabs and adjourned the examination again.

In April 2019, the plaintiff initiated another motion to strike the defendants’ defence and sought costs against the defendants’ lawyers. On the return of the motion, the defendants’ lawyers sought and obtained an adjournment to retain counsel to deal with the costs claim against them. The motion judge, as an adjournment term, ordered the defendants to deliver a better affidavit of documents by June 2019.

On the return of the motion on July 4, 2019, the defendants had not produced what was ordered (and the lawyers did not retain counsel to defend them); the affidavit of documents was incomplete and contained improperly redacted documents.

The motion judge found that the defendants had wilfully disregarded court procedure and orders for three years and had done everything in their power to prejudice the plaintiff’s claim (by failing to provide full disclosure) and avoid an adjudication on the merits. He considered, and rejected, giving a last opportunity for proper production. He struck out the defences and ordered the lawyers to pay substantial indemnity costs of the motion to strike, fixed at $6,200.

Appeal

Owner and the lawyers appealed the order and, notwithstanding that the lawyers were now in a conflict of interest, the lawyers acted for Owner on the appeal. Their appeal did not go well:

The court noted the following:

• The Rules provide for a continuing obligation to disclose all relevant documents, whether they hurt or help.
• Although remedies are available if a party does not comply, each time a party defaults on its disclosure and production obligations and requires an opposite party to seek the court’s assistance, two things happen: the cost of litigation increases and a final determination of the case on its merits gets pushed.
• Although courts usually want to ensure a party has a reasonable opportunity to cure its non-compliance before striking its pleading, striking a pleading is not restricted to “last resort” situations.
• Defaulting parties promote the culture of complacency towards delay and undermine efforts to shift litigation culture to provide more accessible justice to the public.
• A court may make an order to strike earlier in a simple, more-modest monetary claim than it will in a complex claim. Common sense dictates that a simple case should spend less time in the court system and impose lower legal costs on litigants than a more complex one.

The court set out the factors that have to be considered when deciding whether to strike a party’s pleadings. We will not list them here.

Decision

The defendants had argued that any prejudice from the document redactions could have been remedied by an order to unredact. The court held that “this extraordinary submission speaks volumes about the (defendants) cavalier attitude towards their production obligations, showing that they regard them as nothing more than a game of “catch me if you can.” It held that the cultural shift has no place for such technical gamesmanship, which increases litigation costs and delays adjudication.

The court noted that (i) the motion judge had been more than generous in the opportunities he granted the defendants to cure their disclosure failures and (ii) Owner, as the sole directing mind of the corporations, should be held accountable for the defendants’ failure to meet their obligations.

The court also upheld the motion judge’s costs decision against the lawyers. It found that that the lawyers had requested adjournments as delay tactics and were “complicit in the flagrant disregard of the Rules and court orders.” Finally, it noted that, on the appeal, the lawyers were clearly adverse on the issue as to who should pay the costs of the motion and ought not to have acted for Owner.

The court dismissed the appeal with costs of $7,000 from Owner and $7,000 from the lawyers.

 

Image courtesy of Eluj.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.