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From the Bench: Court of Appeal expands the definition of prejudice to include non-litigation prejudice

Non-litigation prejudice now includes stress, inconvenience and the effect on personal and professional reputations.

Humphreys v Trebilcock, 2017 ABCA 116

Case Facts

This Court of Appeal decision arises from an unsuccessful application brought by the Defendants to strike an action due to delay. In this case, the Defendants were accused of liable for fraud and breaches of contract. The action commenced on December 14, 2006 and was unlikely to be tried until 2020. Roughly 9.5 years after the action began, many of the Defendants’ witnesses had died or disappeared; important documents had been lost; and with the Defendants’ professional reputations suffering from the pending litigation of fraud. For those reasons, the Defendants sought to dismiss the Plaintiff’s action.

The Court of Appeal, in overturning Michalyshyn J., found delay in the action caused significant prejudice to the Defendants and dismissed the Plaintiff’s action. The Court focused on four factors:

[31]           First, the plaintiffs allege that the appellants have engaged in fraudulent acts. This exacerbates the stress normally associated with being a defendant in a lawsuit. Common sense supports the conclusion that such claims probably have damaged the appellants’ business reputation in the community in which they operate and have harmed their interests in the short or long term or both. It is more likely than not that enterprises familiar with the defendants and these claims have been unwilling to do business with the defendants. This causes financial hardship.

[32]           Second, those who make claims of this nature must prosecute them with reasonable expedition. So long as they do the law forces the alleged wrongdoers to patiently endure the harm these unproven claims may do to their reputations and their ability to do business in favour of the plaintiffs’ interest in securing a judicial determination of their differences with the appellants.

[33]           Third, the plaintiffs have not proceeded with reasonable expedition. More than ten years have passed since the plaintiffs commenced their action. It will not be tried, in all likelihood, until 2020.

[34]           Fourth, it follows that the plaintiffs’ interest in securing a judicial determination of their dispute with the appellants is no longer more important than the appellants’ interest in carrying on business without fear that unsubstantiated claims of fraudulent conduct in an extant lawsuit will cause others in the circle in which the appellants function to refrain from doing business with them.

Striking out a claim due to prejudice from delay

The Court defined the terms “delay” and “significant prejudice” in Rule 4.31 of the Alberta Rules of Court – two requirements to successfully strike out a claim. In respect of delay generally, the Court will compare the progress made in the action and against the progress of a reasonable litigant in similar circumstances:

[115]      … One measures progress in a specific action and compares it against the progress made by the comparator – the reasonable litigant advancing the same claim under comparable conditions.

[117]      How large must the differential be between the two points before it constitutes delay?

[118]      In 1968 Lord Justice Salmon … opined that the delay must be “inordinate”.

[120]      … In this context inordinate means that the differential between the norm and the actual progress of an action is so large as to be unreasonable or unjustifiable.

Whether delay is considered inordinate will depend on the facts of each case. Certain claims will be governed more strictly than others, increasing the likelihood delay is inordinate:

[123]      … In other words, a nonmoving party who claims that the moving party has committed fraud or a comparably egregious form of misconduct runs a greater risk that delay attributable to the nonmoving party may be characterized as being inordinate than does a plaintiff in other actions not alleging fraud.

With respect to prejudice, the Court made a fundamental statement noting prejudice included not only litigation prejudice, but non-litigation prejudice as well:

[125]     … This is a broad concept and easily embraces litigation and nonlitigation prejudice. • [128]      “Significant”, in the context of a procedural court rule focusing on delay, means prejudice that is more than minor or trivial. It must be important enough to justify the attachment of a serious consequence adverse to the interests of the nonmoving party…

[133]      Sometimes the very existence of litigation may threaten an important and legitimate interest of the moving party. If so, the nonmoving party’s failure to advance the claim against the moving party with reasonable diligence may significantly prejudice the moving party.

In Conclusion

This case is notable for two reasons. First, it is the most recent decision to clarify the standard by which a defendant can seek to strike the claim due to delay under Rule 4.31 of the Alberta Rules of Court. Secondly, the Court confirms prejudice includes non-litigation prejudice such as stress, inconvenience and the effect on personal and professional reputations. The result is a likely increase in the number of stale actions being dismissed as the decision creates clear guidelines to Rule 4.31 and expands the definition of prejudice to include non-litigation prejudice.