Executive Summary: Key Legal and Evidentiary Issues

• The central issue was whether the Plaintiffs provided an acceptable explanation for prolonged delays in prosecuting a civil action commenced in February 2017.
• Failure to advance the action was attributed to a combination of former counsel's personal circumstances, billing disputes, and the Plaintiffs' own inaction.
• Incomplete and heavily redacted disclosure by the Plaintiffs on the status hearing motion was a significant concern for the Court.
• Unexplained gaps in litigation activity totalled approximately 38.5 months out of a roughly 85-month period under review.
• No adequate explanation was provided for key phases of delay, even accounting for the Covid-19 pandemic and former counsel's personal difficulties.
• Prejudice to the Defendants was assessed but ultimately not the decisive factor, as the law permits dismissal where an acceptable explanation for delay is absent.

Facts of the case

Mi5 Print & Digital Communications Inc. and 2214264 Ontario Inc. (the Plaintiffs) commenced an action on February 27, 2017 against Craig Larmer, a former employee, along with Lesley Ann Sharpe, Lesley Ann Sharpe carrying on business as LCS Imagining, Ronald Morgan, Barrie Williams, Pyxalis Inc., and Marvin Foy Marketing Incorporated. The Plaintiffs alleged that Larmer breached his fiduciary duties by sharing Mi5 Print's confidential information with the other Defendants, misappropriating its business opportunities, and soliciting its clients. The claims included breach of fiduciary duty, breach of contract, inducing breach of contract, and intentional and unlawful interference with economic relations.

Early in the proceedings, the Plaintiffs successfully obtained an interlocutory injunction. On May 23, 2017, Justice Lederman granted an interlocutory injunction for a period of one year, finding a strong prima facie case against Larmer and against LCS Imagining and the Pyxalis defendants for providing knowing assistance to Larmer in breaching his fiduciary duty. On July 11, 2017, Justice Lederman ordered costs of $65,000 against the Defendants on a joint and several basis. Despite this early activity, the action stalled significantly. By the time of the status hearing, the parties had not exchanged affidavits of documents, conducted examinations for discovery, participated in mediation, or set the matter down for trial.

Contractual and procedural obligations at issue

No specific contractual clauses or policy terms were the subject of the status hearing itself. The operative framework was procedural: under subrule 48.14(1) of the Rules of Civil Procedure, an action shall be administratively dismissed where it has not been set down for trial by the fifth anniversary of its commencement. The Plaintiffs' original deadline was February 27, 2022, later extended to August 28, 2022 under the Reopening Ontario (A Flexible Response to COVID-19) Act, 2020, which suspended limitation and procedural time periods from March 16, 2020 to September 14, 2020. The Plaintiffs did not take steps to remedy the expiry of that period until December 2023 — more than 15 months after it lapsed.

Court's reasoning and analysis

The Court applied the two-part conjunctive test applicable to status hearings: the Plaintiff must establish (1) an acceptable explanation for the delay, and (2) that the Defendants will not suffer non-compensable prejudice if the action proceeds. Associate Justice Rappos reviewed the litigation history across nine discrete phases spanning February 2017 to April 2024.

An adequate explanation was accepted for certain phases — notably the period when former counsel, David Rubin, was managing his wife's serious illness, the early stages of the Covid-19 pandemic, and the transitional period during which the file was being transferred to current counsel, Peter Carey. However, no adequate explanation was provided for several others, including a four-month delay in serving the reply and defence to counterclaim (February to May 2018), a 16-month period of complete inaction while awaiting a draft expert damages report (June 2018 to October 2019), and a seven-and-a-half-month period after the file was received by current counsel in March 2022 during which no steps were taken.

The Court was also troubled by the Plaintiffs' failure to make full and frank disclosure. Their motion materials contained heavily redacted emails that concealed references to outstanding legal accounts, former counsel's personal circumstances, and communications directly relevant to the reasons for delay. These redactions were only partly remedied after cross-examination and the provision of undertakings. The Court found that material information had been withheld that should have been proactively disclosed, and took this into account in exercising its discretion.

On the question of prejudice, the Court found that the Defendants had not established actual prejudice. Messrs. Williams and Morgan pointed to the 2018 bankruptcies of Pyxalis and MFM as depriving them of business records, and to Mr. Morgan having been diagnosed with mild to moderate dementia, per a letter from Dr. Sanjay Rastogi dated August 6, 2024. The Court rejected both arguments, noting the bankruptcies were voluntarily entered into after the action had already commenced, and that the medical letter did not establish that Mr. Morgan was unable to participate in the litigation. The Larmer Defendants filed only an affidavit from a law clerk and did not argue actual prejudice at all. Despite the absence of proven prejudice, the Court affirmed that dismissal remains available where an adequate explanation for delay is lacking.

Ruling and overall outcome

Associate Justice Rappos found that the Plaintiffs had failed to provide an adequate explanation for approximately 38.5 months out of the roughly 85-month period under review — representing approximately 45.3% of the total time at issue. The Court concluded that such a period of unexplained delay was excessive, and that excusing it would undermine public confidence in the administration of justice. On June 12, 2026, the Plaintiffs' motion for an order setting deadlines to progress the action toward trial was dismissed, and the action was dismissed for delay, with the Defendants as the successful parties. No specific costs amount was ordered in the decision; the parties were strongly urged to resolve costs between themselves, with directions for written cost submissions to follow if agreement could not be reached. The exact amount of any costs award therefore cannot be determined from this decision.