4.31: Application to deal with delay
4.34: Stay of proceedings on transfer or transmission of interest

Case Summary

The Plaintiffs in the underlying Action (the Respondents in the Appeal) raised funds for investments in residential mortgage backed securities in America. They eventually obtained protection under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (the “CCAA”). The Monitor that was assigned found significant irregularities, and the Respondents then began the underlying Action to try and recover nearly $50 million in damages connected to the irregularities on April 5, 2017. The Appellant, which was also a Defendant in the underlying Action, was served with a Statement of Claim on May 10, 2017 and advised that it did not need to file a Statement of Defence and that no steps would be taken against it without reasonable notice.

Fourteen Defendants were noted in default and the Respondents settled with four Defendants. The Court of Queen’s Bench granted an Order that required changes to OmniArch Capital Corporation. Durum Opportunities LP (“Durum”) purchased the assets of OmniArch Capital including the right to pursue the Action, and pursuant to Rule 4.34, the Action was stayed. In 2019 Durum obtained new counsel, advised the Appellant of the assignment of the right to pursue the Action, and provided it with a copy of the asset purchase agreement. This was the first time the Appellant learned of the settlement agreement, Notings in Default, and assignment of the right to pursue the Action. The Respondent then filed an Application pursuant to Rule 4.34 to continue the Action and the Appellant cross-applied to dismiss the action pursuant to Rules 4.34(4) and 4.31. The Chambers Judge granted an Order which, amongst other things, (1) granted the Application by Durum to continue the Action pursuant to Rule 4.34, (2) dismissed the Application by the Appellant to dismiss the Action pursuant to Rules 4.34(4) and 4.31, and (3) ordered that any Application by the Appellant regarding certain settling Defendants be brought within 60 days. These three portions of the Order were appealed.

Pursuant to Rule 4.34(4), if an Order to continue an Action is not made within a reasonable time after it was stayed, an Application could be dismissed for delay under Rule 4.31. The Appellant’s factum did not address the Chamber Judge’s finding regarding Rule 4.34(4). In fact, counsel agreed that Rule 4.34(4) served as a gateway to Rule 4.31. The Court noted that the objective in applying Rule 4.31 was to determine whether a delay was inordinate, inexcusable or otherwise caused significant prejudice to the Defendant: more specifically, whether the delay itself had caused significant prejudice. If the delay was inordinate or inexcusable, significant prejudice was presumed. The Appellant was aware of the CCAA proceeding and the appointment of a Monitor, and therefore the Appellant’s concerns were that it had not been advised of other steps so that it could determine whether to oppose or intervene in those steps. The Court of Appeal determined that the Appellant did not suffer any prejudice from the delay but from the lack of opportunity to participate in other steps, noted that it would be unjust to dismiss the Action for delay when other remedies where available to the Appellant, and dismissed the Appeal.

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