Laredo Construction Inc. et al. v. Sinnadurai

[Indexed as: Sinnadurai v. Laredo Construction Inc.]

78 O.R. (3d) 321

[2005] O.J. No. 5429

Docket: C41676

Court of Appeal for Ontario,

Labrosse, Rosenberg and Gillese JJ.A.

December 19, 2005

Appeal -- Jurisdiction -- Defendant appealing order dismissing motion to set aside default judgment for "single payment of not more than $25,000" -- Divisional Court erring in holding that order in appeal was not order "for single payment" -- Divisional Court having jurisdiction to hear appeal -- Court of Appeal hearing appeal to save time and expense as appeal had originally been transferred from Court of Appeal to Divisional Court -- Divisional Court not having authority to overturn valid order of single judge of Court of Appeal transferring appeal to Divisional Court -- Courts of Justice Act, R.S.O. 1990, c. C.43, s. 19(1)(a)(i).

Civil procedure -- Default judgment -- Setting aside -- Motion judge not erring in dismissing motion to set aside default judgment on basis that defendant's explanation for default amounted to virtually no explanation at all and that defendant's defence on merits, while arguable, would fail as it would be appropriate to grant relief from forfeiture.

Sale of land -- Relief from forfeiture -- Vendor extending original closing date twice -- Purchaser not being ready to close on third closing date and requesting short extension -- Vendor refusing to extend closing date, terminating agreement, claiming forfeiture of deposit and selling house to another purchaser -- Purchaser bringing action for return of deposit and obtaining default judgment -- Vendor's motion to set aside default judgment dismissed -- Motions judge not erring in finding that, while vendor arguably had defence on merits, it would fail because it would be appropriate to grant relief from forfeiture.

The plaintiff and the defendant entered into an agreement of purchase and sale for the sale to the plaintiff of a newly constructed residence. As was permitted under the agreement, the defendant extended the original closing date twice. The plaintiff was not ready to close on the third closing date and requested a short extension of four business days. The defendant refused to extend the closing date, purported to terminate the agreement, claimed forfeiture of the $15,000 deposit and sold the house to another purchaser. The plaintiff brought an action for the return of the deposit. The defendant failed to respond, and the plaintiff obtained default judgment. The defendant's motion to set aside the default judgment was dismissed. The motions judge noted that the defendant's explanation for its failure to deal with the process after it was served was "particularly sparse" and amounted to no explanation. The motion judge also held that the defendant, having terminated the agreement and taken positive steps to sell the property, could no longer rely on the agreement to invoke the arbitration clause which it contained. The defendant appealed to the Court of Appeal, which quickly concluded that, in light of s. 19(1)(a)(i) of the Courts of Justice Act, which provides that an appeal lies to the Divisional Court from a final order of a judge of the Superior Court "for a single payment of not more than $25,000, exclusive of costs", the appeal ought to have been brought in the Divisional Court. The defendant brought a motion before a single judge of the Court of Appeal for an order transferring the appeal to the Divisional Court. The motion was unopposed and the order was granted. The Divisional Court, on its own motion, raised the issue of jurisdiction and determined that it had no jurisdiction to hear the appeal because the order dismissing the motion to set aside default judgment was not an order "for a single payment". The defendant then brought the appeal back to the Court of Appeal.

Held, the appeal should be dismissed.

The Divisional Court erred in holding that it had no jurisdiction to hear the appeal because the order dismissing the motion to set aside default judgment was not an order "for a single payment". The motion that was dismissed was a motion to set aside a default judgment "for a single payment of not more than $25,000". The single payment of not more than $25,000 did not lose its character because of an intervening motion that was dismissed. Moreover, it was not open to the Divisional Court to overturn a valid order of a single judge of the Court of Appeal. The matter was not sent back to the Divisional Court because the parties had already been put to a great deal of expense for a judgment of $15,000.

The motion judge did not err in concluding that the defendant's explanation for the default was "virtually no explanation at all". It was also open to him to conclude that the defence to the action put forth by the defendant was arguable on the facts as presented but that it would fail because it would be appropriate to grant relief from forfeiture. Finally, he correctly concluded, in the circumstances of this case, that the defendant could no longer rely on the contract to invoke the arbitration clause.

APPEAL from an order of Somers J., [2004] O.J. No. 1226, 130 A.C.W.S. (3d) 46 (S.C.J.) dismissing a motion to set aside a default judgment.

Cases referred to 441612 Ontario Ltd. v. Albert, [1995] O.J. No. 271, 36 C.P.C. (3d) 198, 53 A.C.W.S. (3d) 270 (Gen. Div.); Bottan v. Vroom, [2002] O.J. No. 1383, 113 A.C.W.S. (3d) 335 (C.A.); Chitel v. Rothbart, [1988] O.J. No. 1197, 29 C.P.C. (2d) 136 (C.A.); Citifinancial Services of Canada v. 1472354 Ontario Inc., [2003] O.J. No. 525, 120 A.C.W.S. (3d) 579 (S.C.J.); D.R. McKay Financial Group, Inc. v. Klad Enterprises Ltd., 2004 93175 (ON SC), [2004] O.J. No. 4288, 193 O.A.C. 281, 134 A.C.W.S. (3d) 693 (S.C.J.); Janssen-Ortho Inc. v. Novopharm Ltd., [2005] 1 S.C.R. 776, [2005] S.C.J. No. 64, 42 C.P.R. (4th) 385, 2005 SCC 33; Lenskis v. Roncaioli, [1992] O.J. No. 1713, 11 C.P.C. (3d) 99, 35 A.C.W.S. (3d) 103 (Gen. Div.); Morgan v. Toronto (City) Police Services Board, 2003 14993 (ON CA), [2003] O.J. No. 1106, 169 O.A.C. 390, 34 C.P.C. (5th) 46, 121 A.C.W.S. (3d) 433 (C.A.); Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490, [1994] S.C.J. No. 59, 20 Alta. L.R. (3d) 296, 115 D.L.R. (4th) 478, 168 N.R. 381

Statutes referred to Arbitration Act, 1991, S.O. 1991, c. 17, s. 7(1), (2) Courts of Justice Act, R.S.O. 1990, c. C.43, s. 19(1)(a) Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31, s. 17(4)

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 19.08

Paul H. Starkman, for appellants. Philip Cho, for respondent.

The judgment of the court was delivered by

[1] LABROSSE J.A.:-- This is an appeal from an order dismissing a motion to set aside a default judgment with an added issue of jurisdiction.

The Facts

[2] On October 18, 2000, Laredo Construction Inc. ("Laredo") entered into an agreement of purchase and sale with Baskaran Sinnadurai ("Sinnadurai") for the sale of a newly constructed residence for the price of $233,900, with an original closing date of October 4, 2001. Pursuant to the agreement, Sinnadurai paid a deposit of $15,000.

[3] As the house was not ready for October 4, 2001, Laredo, as permitted under the agreement, extended the original closing date to December 6, 2001, and then again to March 28, 2002. On March 27, 2002, Sinnadurai was not ready to close. The previous mortgage approvals had expired because of the closing date extensions and there were some last-minute complications to securing the funds for the third closing date. Sinnadurai's solicitor requested a short extension of four business days (Easter Sunday fell on March 31) to April 5, 2002. Laredo had tendered already on Sinnadurai's solicitor and refused to extend the closing date. On April 2, 2002, Laredo purported to terminate the agreement and claimed forfeiture of the $15,000 deposit.

[4] Sinnadurai alleges that he was ready to close the transaction on April 5. Sinnadurai made a further request to Laredo for the reinstatement of the agreement on April 8, 2002. It is not disputed that, at least on that day, Sinnadurai was in funds to close the transaction. Laredo refused, relying on the provision in the agreement that time was of the essence. On that same date, Sinnadurai was told by Laredo that the house had been sold to another party. The sale was completed on May 6, 2002, for $242,151.61. Laredo refused to return Sinnadurai's deposit of $15,000.

[5] Counsel for Sinnadurai wrote to counsel for Laredo on November 22, 2002, confirming his instructions to place the matter in litigation if Laredo refused to settle. There was no reply. On June 10, 2003, Sinnadurai commenced an action for the return of the deposit and consequential damages. The statement of claim was served on Laredo on June 24, 2003, and Laredo failed to respond. On September 26, 2003, before Himel J., Sinnadurai elected to abandon the claim for consequential damages, and obtained default judgment of $15,000 for the return of the deposit, plus costs of $2,750. A writ of execution was filed against Laredo.

[6] Laredo became aware of the writ of execution on October 20, 2003, when an execution search was performed by a solicitor for another purchaser of a home from Laredo. Laredo posted security, had the writ lifted and brought a motion to set aside the default judgment before Somers J. Laredo has yet to file a statement of defence in the action.

The Motion to Set Aside the Default Judgment

[7] In reasons released on March 25, 2004, the motions judge addressed the three-part test for setting aside a default judgment. See: Morgan v. Toronto (City) Police Services Board, 2003 14993 (ON CA), [2003] O.J. No. 1106, 169 O.A.C. 390 (C.A.), at para. 19.

[8] First, the motions judge noted that Laredo moved with appropriate dispatch to set aside the default judgment once Laredo became aware of it and thus satisfied the first part of the test.

[9] Second, the motions judge saw the explanation of Laredo's failure to deal with the process after it was served as "particularly sparse". The deponent on the affidavit in support of the motion said he had believed that a copy of the statement had been sent to Laredo's solicitor or he apparently neglected to send it and through inadvertence the claim had unfortunately been misplaced in his office. The motions judge saw Laredo's position as no explanation at all, as all it could offer was in effect "I don't know." The affidavit should have at least dealt with the volume of work in the office; the number of matters in litigation that would cause a statement of claim to be dealt with so casually; what was done with it, such as a memo or diary entry; or even an explanation of the company's usual procedure when legal matters arose and papers were served on it. In his view [at para. 10], "to allow the judgment to be set aside on such feeble evidence would be to deprive the decided cases placing restrictions on moving defendants of virtually any effect at all". Relying on the decisions in Citifinancial Services of Canada v. 1472354 Ontario Inc., [2003] O.J. No. 525, 120 A.C.W.S. (3d) 579 (S.C.J.) (Master) and Lenskis v. Roncaioli, [1992] O.J. No. 1713, 11 C.P.C. (3d) 99 (Gen. Div.), he was not satisfied that this evidence met the requirements of the cases.

[10] Third, the motions judge noted that the defence that the plaintiff was not ready, willing and able to close the transaction on the extended date was certainly arguable on the facts, although it would be an appropriate case to grant relief from forfeiture. He also addressed the submission of Laredo that this matter should not have gone to litigation because of the requirement in the agreement of purchase and sale that disputes between the parties be submitted to arbitration pursuant to the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the "Act"). In the view of the motions judge, Laredo, having terminated the agreement and taken positive steps to sell the property, could no longer refer back to and rely on the agreement to invoke the arbitration clause.

[11] The motions judge concluded that Laredo had not met the test to set aside a default judgment and he dismissed the motion, with costs to Sinnadurai fixed at $8,260.67.

[12] By way of Notice dated April 15, 2005, Laredo appealed to the Court of Appeal.

The Jurisdiction Issue

[13] This appeal was scheduled to be heard on November 16, 2005. In preparation for the hearing, it was noticed that the default judgment obtained by Sinnadurai was in the amount of $15,000. Accordingly, counsel were informed that they would be required to address the issue of jurisdiction in light of s. 19(1)(a)(i) of the Courts of Justice Act, R.S.O. 1990, c. C.43, which provides that an appeal lies to the Divisional Court from a final order of a judge of the Superior Court "for a single payment of not more than $25,000, exclusive of costs".

[14] Counsel for Sinnadurai wrote back to inform the court that the matter of jurisdiction had already been before a panel of the Divisional Court on June 22, 2005. The panel had decided the Divisional Court did not have jurisdiction to hear this case and ordered the matter transferred to the Court of Appeal. Further research revealed the following information.

[15] As stated above, Laredo commenced its appeal in the Court of Appeal. Shortly after it was commenced, counsel for Laredo concluded that in light of s. 19(1)(a)(i), the appeal ought to have been brought in the Divisional Court. On December 6, 2004, he brought a motion before Lang J.A. in chambers for an order transferring the appeal to the Divisional Court. The motion was unopposed and Lang J.A. granted the order.

[16] At the hearing on June 22, 2005, the Divisional Court, on its own motion, raised the issue of jurisdiction that had already been determined by a single judge of the Court of Appeal. Part of its endorsement states that it has no jurisdiction to hear this appeal and therefore it transfers the appeal back to the Court of Appeal with written reasons to follow.

[17] In reasons dated July 8, 2005 [reported at (2005), 2005 24261 (ON SCDC), 77 O.R. (3d) 23, [2005] O.J. No. 2886 (Div. Ct.)], Matlow J., writing for the court, stated as follows [at paras. 5 and 6]:

It is not uncommon, as this case demonstrates, for appellants to assume that every order that involves not more than $25,000 can be appealed to this Court. However, s. 19(1) of the Act is much more restrictive and must be followed strictly in accordance with its wording. The relevant provision of s. 19(1) reads as follows:

19(1) An appeal lies to the Divisional Court from,

(a) a final order of a judge of the Superior Court of Justice,

(i) for a single payment of not more than $25,000, exclusive of costs.

Although the order in appeal is, as recognized by our endorsement, a final order of a judge of the Superior Court of Justice, it is not, in form or substance, an order "for a single payment" and, therefore, this appeal does not fall within the scope of our jurisdiction.

[18] As to the basis for the decision, he reasoned as follows [at para. 10]:

We are always respectful of and almost without exception bound by decisions made by judges of the Court of Appeal. However, having regard to the unusual circumstances in which the order for a transfer was made, I am persuaded that we should not follow its implicit recognition that we do have jurisdiction without further consideration of the issue by the Court of Appeal for the following reasons:

(i) it was made on the basis of a submission by counsel for the appellant that was based on a clearly erroneous premise;

(ii) it was made without opposition and without opposing argument;

(iii) it was made without reasons and without any other explicit indication that it was made after specific consideration of section 19 of the Courts of Justice Act;

(iv) it purports to confer an appellate jurisdiction on the Divisional Court which this Court has frequently held in similar cases is not conferred by the Courts of Justice Act and, if followed, would have a disruptive impact on appellate practice in this Court;

(v) in the event that it is we who err in our interpretation of the Courts of Justice Act and that we do have jurisdiction to hear this appeal, justice would be best served if our consideration of this appeal were postponed until after further clarification by the Court of Appeal;

(vi) our decision to decline jurisdiction until after further clarification by the Court of Appeal is based on a principled approach; and

(vii) comity between judges at different levels of the judicial hierarchy, the principle upon which stare decisis is based, would still be maintained without compromise.

[19] In my view, the Divisional Court was in error. The view of Matlow J. that the wording of the order in appeal "THIS COURT ORDERS that the within motion is hereby dismissed" is not, in form or substance, an order "for a single payment", is not a proper interpretation of the words of the section. It is far too narrow. The wording of the order cannot be interpreted in a vacuum. The question must be asked: "What is being dismissed?" The answer is that a motion to set aside a default judgment "for a single payment of not more than $25,000, exclusive of costs" is being dismissed. This interpretation brings the appeal squarely within the jurisdiction of the Divisional Court and is consistent with the intention of the legislature that matters involving a final order of a judge of the Superior Court for a single payment of not more than $25,000 lie with the Divisional Court. The single payment of not more than $25,000 does not lose its character because of an intervening motion that is dismissed.

[20] Moreover, the reasons for re-transferring the appeal back to this court are questionable. In particular, I know of no authority to support the proposition that an order of a higher court made "without opposition and without opposing argument" or "made without reasons and without explicit indication that it was made after specific consideration of" a section of an act is a lesser type of order that can be overturned by a lower court.

[21] It was not open to the Divisional Court to overturn a valid order of a single judge of this court. By way of analogy, I am not aware of any decision of a panel of the Court of Appeal that overrules a decision of a single judge of the Supreme Court of Canada. If the Divisional Court's intention was to have the law clarified, it is not achieved by overruling a higher court.

[22] More importantly, in my view, the Divisional Court seems to have forgotten the parties in this exercise. The hearing before the Divisional Court was the fourth judicial proceeding in this case. This is the fifth hearing, in which the bills of costs submitted, on a partial indemnity basis, are in the amount of $13,897.75 for Laredo and $14,932.55 for Sinnadurai. And if this appeal were returned to the Divisional Court, it would be the sixth proceeding. All of this is for a judgment for $15,000. It would have been far more in the interest of justice had the appeal been dealt with in accordance with the order of Lang J.A. The system of justice has not served these parties well.

[23] In spite of the conclusion that this appeal is within the jurisdiction of the Divisional Court, this court was not prepared to send the matter back. Accordingly, at our request, the Chief Justice of the Superior Court appointed the members of this panel as judges of the Divisional Court for the hearing of this appeal.

The Appeal

[24] As reviewed above, on the motion to set aside the default judgment, the motions judge applied the three-part test. He accepted that Laredo had moved with appropriate dispatch. As to the explanation for the default, he concluded that it was "virtually no explanation at all" and that "to allow the judgment to be set aside on such feeble evidence would be to deprive the decided cases placing restrictions on moving defendants of virtually any effect at all". He also concluded that the defence to the action put forth by Laredo "is certainly arguable on the facts as presented" but that it would fail because it would be appropriate to grant relief from forfeiture. He saw no merit to the arbitration issue.

[25] This court has stated that the factors governing the setting aside of a default judgment are not to be applied rigidly. See Chitel v. Rothbart, [1988] O.J. No. 1197, 29 C.P.C. (2d) 136 (C.A.). There have been cases where the explanation for the default has been given less weight because the defence had merit. See: 441612 Ontario Ltd. v. Albert, [1995] O.J. No. 271, 36 C.P.C. (3d) 198 (Gen. Div.), at para. 48 and D.R. McKay Financial Group, Inc. v. Klad Enterprises Ltd., 2004 93175 (ON SC), [2004] O.J. No. 4288, 193 O.A.C. 281 (S.C.J.). However, this does not mean that the second part of the test is to be ignored because of an arguable defence. Otherwise, why have it?

[26] It is interesting to note, on this issue, the recent decision in Janssen-Ortho Inc. v. Novopharm Ltd., 2005 SCC 33, [2005] 1 S.C.R. 776, [2005] S.C.J. No. 64, where LeBel J. refused an application to extend the time of an application for leave to appeal to the Supreme Court of Canada. He stated at p. 778 S.C.R., para. 4:

Time limits should mean something. Valid reasons should be given to explain the delay. Our Court must be flexible and fair. Fairness is owed not only to applicants but also to respondents who may very well be significantly inconvenienced by undue or unexplained delays.

[27] On the facts of this case, I see no error by the motions judge in giving serious consideration to the second part of the test, which requires that the moving party explain the circumstances which led to the default.

[28] The defence to this action raised by Laredo is that it was entitled to void the agreement and keep the deposit because Sinnadurai was not ready to close on the closing date and that it was not technically or legally obligated to give an extension. However, it will be recalled that Laredo had, in accordance with the agreement, unilaterally extended the closing date on two previous occasions for approximately two and six months, and it then refused Sinnadurai an extension of one week when the earlier arrangements for the mortgage moneys had expired and the arrangements for closing were delayed. Within a few days and before the expiry of the extension asked by Sinnadurai, Laredo had sold the house for an additional $8,000, and kept Sinnadurai's deposit.

[29] In Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490, [1994] S.C.J. No. 59, Major J. wrote, at p. 504 S.C.R., para. 32:

The power to grant relief against forfeiture is an equitable remedy and is purely discretionary. The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach.

[30] Laredo has advanced no response or defence to the claim for relief against forfeiture.

[31] Accordingly, I see no error in the conclusion of the motions judge that, on the facts of this case, it would be appropriate to grant relief from forfeiture.

[32] As to Laredo's defence that the matter had to be dealt with by way of arbitration, the motions judge relied on s. 17(4) of the Act. It provides that:

17(4) Every agreement between a vendor and a prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitrations Act applies.

[33] He considered that subsection (4) had to be read in conjunction with s. 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17, which reads as follows:

7(1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on motion of another party to the arbitration agreement, stay the proceeding.

[34] The motions judge noted that there had been no motion to stay. He also noted that s. 7(2) of that act lists several exceptions to the provision. Specifically, there are two exceptions that he thought were of some significance to this matter, namely that the court may refuse to stay the proceeding if the motion was brought with undue delay (ss. (2)(4)) or if the matter is a proper one for default or summary judgment (ss. (2)(5)).

[35] The motions judge did not express any view on the interaction of these provisions. He inferred [at para. 15] that "one might well think that [these provisions are] limited to matters of dispute between [the parties] such as whether or not certain aspects of the construction were in fact 'substantially complete'". He went on to dispose of this issue on the basis that at the time of the commencement of the litigation, the arbitration clause in the agreement was no longer in effect. He concluded that as Laredo had terminated the agreement and taken positive steps to sell the property, it could no longer refer back to and rely on the contract to invoke the arbitration section.

[36] Accordingly, he dismissed the motion to set aside the default judgment. I agree with the motions judge, in the circumstances of this case.

[37] The decision to set aside a default judgment is a discretionary one. Rule 19.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 104, provides:

19.08(1) A judgment against a defendant who has been noted in default that is signed by the registrar or granted by the court on motion under rule 19.04 may be set aside or varied by the court on such terms as are just.

[38] In Bottan v. Vroom, [2002] O.J. No. 1383, 113 A.C.W.S. (3d) 335 (C.A.), this court held [at para. 13] that:

Where a motions judge exercises discretion, an appellate court should intervene only where the discretion has been exercised on a wrong principle of law or a clear error has been made. It is not the role of an appellate court to replace the exercise of discretion by the motions judge. An appellate court should defer to the findings of fact by a motions judge unless the motions judge disregarded or failed to appreciate relevant evidence.

[39] In arriving at his conclusion that the test to set aside a default judgment had not been satisfied, the motions judge had before him the statement of claim in which Sinnadurai was seeking the return of the deposit of $15,000 for breach of contract or, in the alternative, the return of the money on the basis of relief from forfeiture. He did not have the benefit of a draft statement of defence and an affidavit attesting to the truth of the allegations in the pleading, as are normally provided on a motion to set aside default judgment. He had the affidavits and the cross-examinations in support of and against the motion, which dealt with the claim and the defence to the action, and raised the issue of arbitration. He decided the case on the evidence that the parties chose to put before him, and with full argument on all issues.

[40] In my view, in the context of the relative positions of the parties, the amount in dispute, the nature of Laredo's explanation for the default, and the nature of the defences raised by Laredo, the motions judge properly exercised his discretion in dismissing Laredo's motion to set aside the default judgment.

[41] The motions judge made no palpable and overriding error, and his decision is not so clearly wrong as to amount to an injustice. It would not be in the interest of justice to set aside the default judgment in this unfortunate case.

[42] Accordingly, the appeal is dismissed, with costs fixed at $10,000.

Appeal dismissed.