“All through the years men have protested at the law’s delay and counted it as a grievous wrong, hard to bear. Shakespeare [in Hamlet] ranks it among the whips and scorns of time … . Dickens [in Bleak House] tells how it exhausts finances, patience, courage, hope”.
- Lord Denning, Allen v. Sir Alfred McAlpine & Sons Ltd
Alberta Lawyers Indemnity Association (“ALIA”), a wholly owned subsidiary corporation of the Law Society of Alberta, provides Alberta’s mandatory professional liability indemnity program to lawyers. In October 2021, ALIA, with the support of the Law Society of Alberta and the Alberta Civil Trial Lawyers Association, requested a change to Rule 4.31 of the Alberta Rules of Court as a loss prevention initiative. This article will explain the case law developments around Rule 4.31, and the impact of those developments on the indemnity program that caused ALIA to pursue the amendment.
Rule 4.31 provides a mechanism whereby the court may dismiss all or part of an action where delay in prosecuting the action has prejudiced the applicant. Rule 4.31 has existed in the Rules of Court in one form or another since 1968, but has not been consistently applied by the courts.
To be successful under Rule 4.31, applicants must prove that there has been litigation delay, and that they have suffered significant prejudice as a result of the delay. However, if the applicant proves that there has been inordinate and inexcusable delay, the delay is presumed to have caused significant prejudice. The onus then shifts to the respondent to rebut the presumption.
The Humphreys Decision
Before the 2017 Alberta Court of Appeal decision of Humphreys v. Trebilcock, 2017 ABCA 116 (“Humphreys”), there was a common understanding throughout the legal profession that lawsuits would typically only be vulnerable to dismissal under Rule 4.31 if they were more than 10 years old and only when actual prejudice had been suffered by the defendants. It was also generally accepted that if a lawsuit was not subject to dismissal under Rule 4.33 (for the passage of three years without a significant advance), it was not vulnerable to dismissal under Rule 4.31 except in cases of actual and serious prejudice.
Humphreys was a message from the Court of Appeal to the lower courts and the legal profession that litigation delay should no longer be tolerated in Alberta. This was consistent with recent attempts by the justice system at all levels to shift the focus of lawsuits away from trial, and to instead focus on decreasing the length and costs of litigation. To accomplish this goal, the court created a mandatory six-step test to be applied in all Rule 4.31 applications, which became known as the “Humphreys framework”.
The fallout from Humphreys was a dramatic increase in Rule 4.31 applications. Lawsuits that were believed safe, were now vulnerable to dismissal, with no transition period to adapt. Each Rule 4.31 application also represented a potential claim by the plaintiff clients against their own lawyers. Throughout 2017 and 2018 the lower courts applied the Humphreys framework strictly, resulting in the dismissal of many lawsuits. Particularly challenging in defending Rule 4.31 applications under the Humphreys framework was rebutting the presumption of prejudice in cases where the delay was found to be inordinate and inexcusable, as this required respondents to essentially prove a negative.
Impact of Humphreys on ALIA Claims
Immediately following Humphreys, ALIA saw a dramatic increase in claims related to Rule 4.31. From 2016-2021, ALIA observed a 239% increase in Rule 4.31 claims compared to the previous five policy years. Incurred losses dramatically rose from $1.36 million in the aggregate to approximately $18 million in the aggregate.
In 2019, another marked shift in the law occurred as the Court of Appeal began applying a more nuanced version of the Humphreys framework in a series of decisions culminating in Transamerica Life Canada v Oakwood Associates Advisory Group Ltd, 2019 ABCA 276 (“Transamerica”).
In Transamerica, the court clarified that there was no mandatory framework for assessing Rule 4.31 applications, and that the basic test is found in the text of the Rule itself. Each lawsuit is unique and should be examined on its own merits. Most importantly, the court reinforced that part of the analysis must involve a court taking a harder look at both the conduct of the defendants in the lawsuit and whether they participated in, or contributed to, the delay, in which case the delay may be excusable, and the presumption of prejudice does not apply.
Following Transamerica, ALIA observed a decrease in the volume of Rule 4.31 claims, which likely can be attributed to the courts taking a harder look at defendant participation in the litigation delay.
Transamerica has now been applied in numerous lower court decisions, and by the Court of Appeal itself in Nova Pole International Inc. v Permasteel Construction Ltd., 2020 ABCA 45, among others. It has resulted in courts willingness to conclude that long delays are not necessarily inordinate and inexcusable, particularly in complicated commercial lawsuits, which often require some flexibility regarding how and when litigation steps might be completed. As noted above, where the delay is not inordinate and inexcusable, prejudice is not presumed, and the applicant must prove actual significant prejudice.
The Rule 4.31 Amendment
ALIA’s submission to the Rules of Court Committee was designed to codify the principles outlined by the Court of Appeal in Transamerica: to require courts to consider the role of defendants in contributing to the delay, while allowing courts to retain discretion to determine whether an action should be dismissed.
A primary goal was to reduce the operation of the presumption of prejudice, which, as noted above, is difficult for respondents to rebut. The Rules of Court Committee considered ALIA’s request at their March 2022 meeting, and in May 2022, the Alberta Rules of Court were amended through a regulation to the Judicature Act, including an amendment addressing ALIA’s submission.
The amended Rule is as follows:
Application to deal with delay
4.31(1) If delay occurs in an action, on application the Court may
(a) dismiss all or any part of a claim if the Court determines that the delay has resulted in significant prejudice to a party, or
(b) make a procedural order or any other order provided for by these rules.
(2) Where, in determining an application under this rule, the Court finds that the delay in an action is inordinate and inexcusable, that delay is presumed to have resulted in significant prejudice to the party that brought the application.
(3) In determining whether to dismiss all or any part of a claim under this rule, or whether the delay is inordinate or inexcusable, the Court must consider whether the party that brought the application participated in or contributed to the delay.
The amended Rule provides that the court must consider the contribution and participation of the defendant in the delay in assessing whether the delay is inordinate and excusable, and most importantly, in determining whether to dismiss all or part of an action.
Avoiding Rule 4.31 Claims
ALIA cautions all lawyers to avoid delay. A Rule 4.31 application will most easily be avoided by prosecuting a client’s claim in a timely fashion and in a manner consistent with the Alberta Rules of Court. Advice and strategies to avoid delay can be found in a September 2022 ALIAdvisory.
Darren LaRose is Senior Claims Counsel at Alberta Lawyer’s Indemnity Association. Before joining ALIA in 2016, he practiced commercial litigation at a national law firm.