Alberta – unilateral offers to mediate/arbitrate fail to resist dismissal of litigation under “drop dead rule” – #304

In McKay v. Prowse, 2020 ABCA 131, Alberta’s Court of Appeal upheld the dismissal of Plaintiff’s litigation despite Plaintiff’s genuine but unilateral invitations to mediate or arbitrate, holding that unrequited overtures do not qualify as significant advances in a litigation.  Using jurisdiction confirmed by the Alberta Rules of Court, Alta Reg 124/2010, the Court determined that Plaintiff had failed to take a significant step in three (3) years prior to the application made by Defendant.  The Court cautioned that, absent a standstill agreement or a defendant’s tactics to obstruct, stall or delay, if a defendant fails to accept invitations to engage in alternate dispute resolution mechanisms, plaintiff continues to bear the onus to advance its action or risk having it struck.

On August 27, 2009, Plaintiff commenced an action in Court of Queen’s Bench alleging negligence against Defendants.  The last formal steps taken in the litigation by way of court filings involved Plaintiff’s June 2013 Notice to Admit Facts and Defendants’ July 2013 Reply to Notice to Admit Facts.  Afterwards, Plaintiff and Defendants exchanged on a variety of topics produced in some detail in the Court of Appeal’s reasons at para. 7.  Those exchanges involved the following and included settlement, mediation and arbitration as options:

June – July, 2013 – there were communications between counsel for the parties to discuss possible settlement.

November 21, 2013 – the appellant, through a corporation, had brought a second patent action in the United States for alleged infringement of American patents against Weatherford’s American entities. The Canadian and American patents related to the same refrigeration process, although they were not identical. The US action was settled.

November 26, 2013 – a settlement meeting took place in the Canadian action.

March 14, 2014 – the respondents requested a calculation of damages in the negligence action based on the settlement of the US action. 

May 30, 2014 – the appellant provided a calculation of damages and made a settlement offer.

June 2, 2014 – the respondents requested documents supporting the damages calculation.

August 7, 2014 – the respondents requested supporting evidence for the damages calculation.

August 12, 2014 – the appellant provided a redacted copy of an expert report from the US action.

August 20, 2014 – the appellant provided a Weatherford brochure.

September 9, 2014 – the respondents requested an un-redacted copy of the expert report and a Supplemental Affidavit of Records, including documents from the US action that the appellant intended to rely on.

October 8, 2014 – the appellant advised that they could only provide the redacted expert report and reiterated the settlement offer. The appellant suggested a JDR. The respondents responded that they were not interested in a JDR but might be interested in arbitrating the matter.

October 14, 2014 – the respondents requested “all producible documents” and indicated they might be interested in arbitration.

November 21, 2014 – the appellant provided names of potential arbitrators.

November 27, 2014 – the respondents repeated their request for a Supplemental Affidavit of Records.

January 27, 2015 – the appellant inquired if the respondents would be interested in mediation.

November 14, 2015 – the appellant indicated that he wanted to conduct questioning and requested a response about the possibility of mediation.

April 25, 2016 – the appellant, through his US corporation, applied to have a declaration from an expert that was under a protective order in the US action released, which was denied on June 28, 2016.

November 14, 2016 – the appellant advised that they were still willing to participate in mediation but it was unclear whether the respondents had any interest and requested they advise of their position. The appellant also requested dates for questioning”.

On November 17, 2016, Defendants applied under Rule 4.33 of the Alberta Rules of Court for an order dismissing Plaintiff’s action.  Rule 4.33 reads in part:

4.33(2) If 3 or more years have passed without a significant advance in an action, the Court, on application, must dismiss the action as against the applicant, unless … (b) an application has been filed or proceedings have been taken since the delay and the applicant has participated in them for a purpose and to the extent that, in the opinion of the Court, warrants the action continuing”.

First, Master Sandra L. Schulz granted the application, issuing her decision November 16, 2017 in McKay v. Prowse, 2017 ABQB 694.  Second, Plaintiff appealed the Master Schulz’ decision.  Madam Justice June M. Ross dismissed the appeal, issuing her decision November 29, 2018 in McKay v. Prowse, 2018 ABQB 975.  Plaintiff appealed Ross J.’s decision to the Court of Appeal.  Third, the Court of Appeal dismissed the appeal, issuing its decision April 3, 2020 in McKay v Prowse, 2020 ABCA 131.

Master Schulz referred to St. Jean Estate v. Edmonton (City), 2014 ABQB 47 and Nash v. Snow, 2014 ABQB 355, cited with approval in Weaver v. Cherniawsky, 2015 ABQB 157 (aff’d on appeal in Weaver v. Cherniawsky, 2016 ABCA 152), for the principles applicable to a motion to dismiss. See also Flock v. Flock Estate, 2017 ABCA 67.

Master Schulz summarized the test as requiring the court to determine “if there has been a significant advance in the action that actually moves the lawsuit forward in a meaningful way considering its nature, value, importance and quality”.  The court considers that the “genuineness and the timing” of a step is relevant too, with “the focus being on the substance of the step taken and its effect on the litigation, rather than on its form”.

Master Schulz evaluated steps involving an exchange of documents by way of Supplementary Affidavit of Records and held that none of the documents attached to it served to materially advance the action.

She then turned to discussions involving settlement, mediation and arbitration.

[18] The parties attended a settlement meeting in November 2013, following which there was an exchange of correspondence about JDR or mediation and numerous requests for documentation to substantiate the claim being advanced by the Plaintiff. While the Court encourages the parties to participate in settlement discussions, the case law is clear:  unsuccessful settlement discussions, or settlement discussions that do not narrow the issues or obtain agreement on some of the factual issues such as quantum or liability, are not a material advance in the action (See 525812 Alberta Ltd v Purewal, 2004 ABQB 938 at para 16-17 (Slatter, J. as he then was); Krieter  v Alberta, 2014 ABQB 349 at para 18 (Master Hanebury); Huynh v Osman, 2013 ABQB 218 at para 23 (Gates, J.). Similarly, the mere scheduling or the attempt to schedule such a step is not an advance (Weaver QB at para 11-15).

[19] Counsel for the Plaintiff urges that the repeated correspondence surrounding the settlement discussions and the attempts to set up either JDR or mediation take this case outside the ambit of Rule 4.33, a rule that was intended to capture cases that have languished for a period of three or more years. He argues that Rule 4.33 was intended to remedy a situation where a case has been abandoned, not a situation as here where the parties were actively trying to determine a method of out-of-court  resolution (See Turek v Oliver, 2014 ABCA 327 at para 5; Ursa Ventures Ltd  v Edmonton (City), 2016 ABCA 135 at para 10)

[20] In Flock at para 19-26, the Court of Appeal addressed this argument, referring it to as “lulling” the Respondent into waiving reliance on Rule 4.33. The Court points out that a standstill agreement cannot be inferred; it must be express. Silence does not amount to acquiescence to delay. Attempts at settlement that do not narrow the issues or obtain agreement on factual issues do not justify a delay or amount to a standstill agreement. Simply put, the case law does not interpret Rule 4.33 in the manner that counsel urges it to be interpreted. While I might sympathize with counsel who is attempting to move a matter along through settlement, the case law is clear. Counsel must practice with one eye on settlement and another on the requirements of the Rules of Court”.

On appeal, Ross J. identified correctness as the standard of review on an appeal from a Master’s decision, referring to Bahcheli v. Yorkton Securities Inc., 2012 ABCA 166. After summing up the chronology of exchanges and referring to Rule 4.33 as the “drop dead rule”, Ross J. reproduced Master Schulz’ reasons at paras 18-20. 

At paras 34-45, Ross J. identified additional precedents applicable to whether settlement discussions advance an action: 525812 Alberta Ltd. v. Purewal, 2004 ABQB 938; Montreal Trust Company of Canada v. Talcorp Limited, 2013 ABQB 398; Pearson v. Parkland (County), 2014 ABQB 690; Ro-Dar Contracting Ltd. v. Verbeek Sand & Gravel Inc., 2016 ABCA 123; Paquin v. Whirlpool Canada LP, 2016 ABQB 147; Delver v. Gladue, 2018 ABQB 226; and, Sutherland v. Brown, 2018 ABCA 123.

She noted that, prior to Rule 4.33, the court in 525812 Alberta Ltd. v. Purewal, 2004 ABQB 938 paras 16-17 openly questioned the utility of settlement discussion. 

[16] It is difficult to envision how settlement discussions can materially advance an action. If the settlement discussions are successful, the action will be settled, and the matter is at an end. If the settlement discussions are unsuccessful, they accomplish nothing, and do not materially advance the action. Since the policy of the Court favours settlement, it would be unfortunate if merely entering into settlement discussions with the other party would in effect extend the time under the drop dead rule. This would discourage, rather than encourage settlement discussions. There is the possibility that the action might not be settled in whole, but that the settlement discussions might produce a narrowing of the issues, an agreement on certain facts, or an agreement on parts of the action (such as quantum or liability). In the latter case settlement negotiations might amount to things that materially advance the action, but there is nothing like that in this case.                   

[17] While most actions are resolved by settlement, and the Court encourages parties to settle their own differences, settlement discussions are not themselves an excuse for not advancing the action. If settlement discussions are unsuccessful, that is no excuse for simply doing nothing. In this case there was a period of approximately 20 months between the last settlement discussions and the motion to strike, a delay that cannot be justified under any reasoning”.

The courts’ approach evolved, urged on Ross J. noted by the Rules’ introduction at R.1.2(3)(b) to “periodically evaluate dispute resolution process alternatives to a full trial, with or without assistance from the Court”.

The review of the cases demonstrated a willingness to accept settlement discussions as advancing an action if they served to narrow the issues without over-emphasizing the outcome of the actions taken.  Ross J.’s analysis lead her, at paras 46-50, to conclude that Plaintiff’s settlement negotiations did not qualify as significant advances.   She accepted that, despite being genuine, the negotiations fell short of the standard set by the courts to advance an action.

[48] I take from the case law, particularly the Court of Appeal decisions in Ro-Dar and Sutherland, that genuine but unsuccessful settlement negotiations alone do not constitute a significant advance in an action. There must be something additional, in the form of a narrowing of issues or production of relevant information.

[49] I considered whether the Plaintiff’s offer – which asserted damages far less than those claimed in the Statement of Claim, and further reduced that amount to account for liability issues – might constitute a significant advance. I concluded that it did not because it was a unilateral without prejudice offer. It did not contain admissions that could be useful within the litigation process. It did not lead to a counter offer or “back and forth” process. As a result, the parties did not reach even informal agreement on any of the issues in the lawsuit”.

Ross J. came to a similar result on the issue of the documents attached to the Supplemental Affidavit of Records.

On appeal, the Court of Appeal upheld the dismissal.  In addition to endorsing the grounds applied by Master Schulz and Ross J., the Court at paras 23-30 expanded on what conduct is expected of a defendant receiving invitations to negotiate and arbitrate before that defendant confirms it engages.

The Court noted that Defendants did not respond to inquiries about the other alternatives and might have been clearer earlier about not pursuing arbitration proposed by Plaintiff.  That said, the obligation for carriage of the action rests on a plaintiff and bears the onus of advancing it lest it be struck. Absent a standstill agreement or conduct which reflects tactics to obstruct, stall or delay action, defendants are not responsible for the lack of significant advances.

The Court referred to Janstar Homes Ltd v. Elbow Valley West Ltd, 2016 ABCA 417 for a statement of the litigants’ respective roles and responsibilities.

[26] With respect to the foundational rule 1.2, two comments are in order. First, it does not override the clear mandatory language of rule 4.33. Second, it does not have the effect of requiring a defendant, in any manner, to assume carriage of an action where the plaintiff is not actively advancing its own claim. The initiative at all times remains with the plaintiff to pursue its lawsuit in a timely fashion: XS Technologies Inc v Veritas DGC Land Ltd, 2016 ABCA 165 at para 7. On the other hand, a defendant is obliged, pursuant to the foundational rule 1.2, not to engage in tactics that obstruct, stall or delay an action that the plaintiff is advancing”.

The Court concluded with a caution.  “If a defendant is not responding to an invitation to resolve the dispute through an alternate dispute resolution mechanism, the onus remains on the plaintiff to take steps to advance the action or risk having it struck. In the absence of a standstill agreement, parties may need to operate on two tracks – settlement and litigation – at the same time”.

urbitral note – First, absent express powers to do so by agreement of the parties, a provision in the rules of an administering institution and/or statute, arbitral tribunals do not have inherent authority to dismiss arbitral proceedings for want of prosecution.  As confirmed in Premium Brands Operating GP Inc. v. Turner Distribution Systems Ltd., 2011 BCCA 75, courts are unwilling to infer a general power under the domestic arbitration legislation for an arbitral tribunal to dismiss a claim for want of prosecution.  See the decision of the House of Lords in Bremer Vulkan Schiffbau Und Maschinenfabrik v. South India Shipping Corpn. [1981] 1 All. E.R. 289 and Lord Diplock’s comments on the respective obligations of plaintiffs and defendants in litigation before the courts and before arbitral tribunals.

An arbitral tribunal does have authority to impose sanctions if a party fail or refuses to complete a procedural step despite order, notice and opportunity to do so.   McKay v. Prowse, 2020 ABCA 131 demonstrates an advantage courts have to exercise the “drop dead rule” made available in most civil procedure rule sets.

Second, despite an advantage of having express, if not inherent, powers to dismiss for lack of activity, the timeline in the reasons disclose the paired disadvantages of delay and appeal associated with court litigation and exercising that express or inherent power to dismiss.  Plaintiff’s litigation began in August 2009 and, without much detail provided, appeared to be active up until the July 2013 filing of Defendants’ Reply to Notice to Admit. Following those initial years, Defendants’ application to dismiss was filed November 17, 2016, heard October 4, 2017 and dismissed on November 17, 2016.  The first appeal was heard September 6, 2018 and dismissed November 29, 2018.  The second appeal was heard March 6, 2020 and dismissed April 3, 2020. All three (3) court decisions issued promptly following the related hearing. The delays were occasioned by other forces and by the existence of the appeals available.

The underlying application was based on legislation which stipulated that a three (3) year period authorized the application for dismissal.  Triggered by three (3) years of inactivity, the application to dismiss was dismissed over three (3) years later following an initial hearing and a pair of appeals. While an arbitral tribunal might not be able to grant the dismissal, the dismissal required six (6) years.