Striking a pleading for failure to comply with interim order

Koohestani v. Mahmood, 2015 ONCA 56:

[54]       Notwithstanding the legitimate concerns raised before Spence J., my difficulty with his decision to strike the appellants' defence is that he failed to apply the principles relevant to such a request, particularly those set out by this court in Bell ExpressVu Limited Partnership v. Corkery, 2009 ONCA 85, 94 O.R. (3d) 614. In Bell ExpressVu, at para. 35, the majority identified striking out a defence as a severe remedy and made it clear that it should generally not be imposed as a remedy of first resort.  The defaulting party should, at least, be provided with an opportunity to cure the default.  

[55]       Such was not done in this case.

[56]       This failure is of particular note given the order of Roberts J. was not finally settled until November 6, 2013, the day before the motion to strike. The record suggests to me that it was the appellants' recusal motion and on-going attempts to re-argue the merits that led to such profound delay in settling the terms of the order.  Nonetheless, the November 6, 2013, endorsement indicates that on that day a non-trivial change was made to the December 12, 2012 order – namely the removal of any reference to declaratory relief.  The respondent has not disputed that the time for appealing the order continued to run when the parties appeared before Spence J.  Given the on-going willingness of Roberts J. to hear further submissions and alter the order into November 2013, and the extant right to appeal that order when the motion was argued before Spence J., it is possible that the appellants did not fully appreciate the peril of not paying the damages and costs ordered by Roberts J. 

[57]       In addition to the primary principle identified in Bell ExpressVu, - that striking out a defence should not be the remedy of first resort, additional factors should be taken into account in deciding whether to strike a defence for failure to comply with court orders.  

[58]       First, the action should be examined with particular attention to the merits of the defence: Bell ExpressVu, at para 36. The pleading and any evidence relevant to the defence may demonstrate a strong defence supporting the conclusion that the interests of justice warranted finding another way to sanction the misconduct.  On the other hand, a blatantly unmeritorious defence may give rise to the inference that the defendant's refusal to comply with a court order is part of a deliberate strategy to delay a decision on the merits – conduct that may justify the imposition of a more severe sanction.  

[59]       In my view, it cannot be said that the appellants' defence in this case is obviously without merit.  

[60]       Second, the context of the misconduct relied upon is relevant to the determination of a response that is not only proportional to the severity of the misconduct but also in keeping with the overarching objectives that guide the application of the rules; namely, that set out in r. 1.04 that the rules should be interpreted to secure the just determination of each civil proceeding on its merits.  

[61]       In this case, the misconduct that led to the striking of the defence took place in the context of a peripheral dispute involving a relatively small amount (just over $15,000) in relation to the amount in issue, at least as pleaded (over $680,000).   See Tarion Warranty Corp. v. 1486448 Ontario Inc., 2012 ONCA 288, 2012 CarswellOnt 5355.

[62]       Third, in some cases the record may indicate that it was counsel for the defaulting parties rather than the parties themselves who should bear primary responsibility for the misconduct in issue.  As stated by Sharpe J.A., writing for the court in Marché D'Alimentation Denis Thériault Ltée v. Giant Tiger Stores, 2007 ONCA 695, 87 O.R. (3d) 660,  at para. 28, "The law will not ordinarily allow an innocent client to suffer the irrevocable loss of the right to proceed by reason of the inadvertence of his or her solicitor".  

[63]       Here, even without the proposed fresh evidence, the record before Spence J. points to Mr. Barnwell as the guiding (although hardly inadvertent) force behind the appellants' failure to comply with Roberts J.'s order.  The fact that much of what concerned Spence J. was conduct that lies at the feet of their former counsel does not insulate the appellants from the consequences of such conduct.  However, in my view, it is relevant to the determination of an appropriate sanction. 

[64]       The failure of Spence J. to take these factors into account disentitles his decision to the deference it would normally attract.  I would not sanction the appellants' failure to comply with the order of Roberts J. and associated conduct by striking the defence.  My review of the record demonstrates a misguided refusal to accept the result of the motion for partial summary judgment rather than an abuse of process.   In this light and in the light of my other observations set out above, I would impose a less draconian remedy.  I would set aside the order striking the statement of defence on the following terms.  I would order that the amounts owing under the order of Roberts J., including costs and post-judgment interest, be paid within 30 days of the release of these reasons, failing which the respondent would be entitled to move to strike out the statement of defence.