Court File and Parties
Court of Appeal for Ontario Date: 2022-02-07 Docket: C69243
Before: Lauwers, Huscroft and Coroza JJ.A.
Between: Charles Franchetti and Emily Thomas and Benjamin Franchetti pursuant to The Family Law Act, R.S.O. 1990, c. F.3, as amended Plaintiffs (Respondents)
And: Alan Douglas Huggins, Basil Mills, 1729780 Ontario Inc., c.o.b. as Jovy’s Bar & Café, Zelijka Stankovic-Zubic, Shannon Malouin, Niagara Health System-Greater Niagara General Site, Dr. Rajeshwar Hanmiah, Dr. F. Gadhafi, Pamela Lockey, Marlene Caldwell, Dr. Charles L. Consky, and Dr. Gerald D. Scaife Defendants (Appellants)
Counsel: Roman Botiuk, for the appellants Benjamin Salsberg, for the respondents
Heard: January 24, 2022 by video conference
On appeal from the order of Justice David L. Edwards of the Superior Court of Justice, dated February 25, 2021, with reasons at 2021 ONSC 1435.
Reasons for Decision
[1] This is an appeal by 1729780 Ontario Inc., carrying on business as Jovy’s Bar & Café (“Jovy’s Bar”), and its owner Zelijka Stankovic-Zubic, from the motion judge’s decision refusing to set aside their noting of default. For the reasons set out below, the appeal is dismissed.
The Factual Background
[2] The respondent, Charles Franchetti, was assaulted on May 26, 2011 by another patron at Jovy’s Bar. The statement of claim was served on Jovy’s Bar, Ms. Stankovic-Zubic, and Ms. Malouin, an employee, in April 2013. In March 2014, counsel for the respondents advised the appellants that they would be noted in default if they did not file a statement of defence. After getting no response, counsel noted the appellants in default on March 13, 2014.
[3] Jovy’s Bar and Ms. Stankovic-Zubic brought a motion for an order setting aside their noting of default. The respondents opposed. The other defendants consented, apart from Ms. Malouin, who did not participate.
[4] Ms. Stankovic-Zubic deposed that she sought legal advice from a lawyer, Zijad Saskin. According to Ms. Stankovic-Zubic, his advice was that she did not have to file a statement of defence because she had no insurance, and it was therefore not “tactically worthwhile” for the respondents to sue her. She did not provide the date of that visit, but counsel for the respondents, Mr. Toomath, deposed that Mr. Saskin called him around October 3, 2017. They discussed damages briefly. Mr. Saskin did not request an extension of time or a waiver of the requirement that a statement of defence be filed. Mr. Toomath later refused to consent to a request to have the noting of default set aside. The case has been pre-tried and a non-jury trial has been set for October 2022.
The Standard of Review
[5] Whether to set aside a noting of default is a discretionary decision: Intact Insurance Company v. Kisel, 2015 ONCA 205, 125 O.R. (3d) 365, at para. 12. Lower courts’ discretionary decisions are entitled to appellate deference, but “will be reversible where that court misdirected itself or came to a decision that is so clearly wrong that it amounts to an injustice”: Penner v. Niagara, 2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27. The court added: “Reversing a lower court’s discretionary decision is also appropriate where the lower court gives no or insufficient weight to relevant considerations”.
The Governing Principles: Setting Aside a Noting of Default
[6] The Rules of Civil Procedure, R.R.O. 1990, Reg. 194 are meant to be taken seriously by plaintiffs and defendants. Under r. 1.04(1), the rules are to be “liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.” Further, with respect to a failure to comply with the rules, the court, under r. 2.01(1)(a) “may grant all necessary…relief, on such terms as are just, to secure the just determination of the real matters in dispute”.
[7] Rules 18.01 and 18.02 oblige a defendant to respond with a statement of defence within 20-30 days of the date the defendant is served with the statement of claim. The consequences of failing to respond can be dire. Under r. 19.01, the claimant may have the defendant noted in default. A defendant noted in default under r. 19.02(1) “is deemed to admit the truth of all allegations of fact made under the statement of claim” and may not otherwise participate in the action, other than by bringing a motion to set aside the noting of default. The next dire consequence is that after noting the defendant in default, in certain circumstances the plaintiff may move for default judgment under r. 19.04.
[8] Under r. 19.03, a defendant noted in default may move to have the noting of default set aside, and this may be ordered “on such terms as are just.” In the context of an action that had been dismissed for delay, Weiler J.A. discussed several guiding principles that are also relevant to setting aside a noting of default: H.B. Fuller Company v. Rogers, 2015 ONCA 173, 386 D.L.R. (4th) 262, at paras. 25-29. These include the strong preference for deciding civil actions on their merits, the desire to construe rules and procedural orders non-technically and in a way that gets the parties to the real merits, and whether there is non-compensable prejudice to either party.
[9] There are many cases discussing the criteria for setting aside a noting of default. See particularly Laskin J.A.’s detailed exposition in Kisel, at para. 13. To summarize the jurisprudence, the following factors have been found to be relevant in considering whether a noting of default should be set aside:
(1) The parties’ behaviour; (2) The length of the defendant’s delay; (3) The reasons for the delay; (4) The complexity and value of the claim; (5) Whether setting aside the noting of default would prejudice a party relying on it; (6) The balance of prejudice as between the parties; and (7) Whether the defendant has an arguable defence on the merits.
[10] These factors are not exhaustive nor are they to be applied as rigid rules. An arguable defence on the merits may justify the court in exercising its discretion to set aside a default judgment, and for that purpose it is sufficient for the defence to have an “air of reality”: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at para. 51. However, perhaps because requests to set aside noting in default usually occur early in the litigation process, unlike this case, courts will rarely require a defendant who has been noted in default to show an arguable defence on the merits. In a case such as this one involving a significant delay, the moving party is required to show an arguable case on the merits.
The Motion Judge’s Decision
[11] The motion judge instructed himself on the factors from Kisel and made the following determinations:
(1) The behaviour of the plaintiff and defendant: Mr. Franchetti behaved appropriately in pursuing his claim, while Ms. Stankovic-Zubic did not since she did not seek legal advice until approximately three years after she received the statement of claim. (2) The length of the defendants’ delay: There are two periods of delay. First, there was the delay between the service of the statement of claim in April 2013 and Ms. Stankovic-Zubic seeking legal advice in October 2017 from Mr. Saskin. The second delay occurred between October 2017 and February 2020, when Ms. Stankovic-Zubic again sought legal advice, this time from her present counsel, Mr. Botiuk, who took action. (3) The reasons for the delay: The first period of delay is unexplained. The reason offered for the second period of delay is that Ms. Stankovic-Zubic was following erroneous advice from Mr. Saskin, who has since been disbarred. There is no corroboration of this advice from Mr. Saskin, nor any supporting documentation. (4) The complexity and value of the claim: The claim is complex and involves a significant sum of money. There are claims against the parties involved in the bar incident, as well as against doctors and a hospital for events that occurred during treatment. (5) Prejudice to a party relying upon the default: There is significant prejudice to the parties noted in default since they will not be able to contest liability and damages, and may be held responsible for a potentially significant amount of damages. On the other hand, there is prejudice to Mr. Franchetti. He is in ill health, and although the incident occurred in 2011, the trial will likely not take place until October 2022.
[12] With respect to prejudice, the motion judge noted that counsel for Ms. Stankovic-Zubic argued that prejudice to Mr. Franchetti could “mostly be alleviated by his agreement to not examine the plaintiff and the other defendants.” However, the motion judge was concerned about trial scheduling and noted that Mr. Franchetti might seek an earlier trial date after waiving the jury. The jury has since been waived without any effect on the scheduled trial date.
[13] After considering these factors, the motion judge declined to set aside the noting of default. He emphasised that no reason was offered for the initial period of delay. As for the second period of delay, he found it “highly unlikely that a trained lawyer would advise a client to ignore a Statement of Claim” and refused to accept this justification based solely on Ms. Stankovic-Zubic’s uncorroborated affidavit.
The Principles Applied
[14] The appellants’ counsel asserted that their defence on the merits – that the attack at Jovy’s Bar was unforeseen and unforeseeable – is arguable and has an air of reality. We agree. But that is only part of the picture, albeit one that the motion judge did not consider.
[15] With respect to the delay, counsel admitted that the initial decision by his clients not to defend was “strategic” or tactical, and that the appellants proceeded on the erroneous advice that the absence of insurance on the bar made them unlikely targets for legal action. Ms. Stankovic-Zubic deposed that obtaining insurance had been prohibitively expensive in light of the bar’s low-cost business model, although as counsel noted, licensed bars must be insured as a matter of law. This court is reluctant to provide relief to parties who make strategic decisions that turn out to be wrong.
[16] The appellants’ counsel was candid in admitting that the explanation for the appellants’ delay in responding to the lawsuit was weak, but he asserted that any prejudice to the respondents could be alleviated by agreeing to strong terms that would ensure that the trial could proceed as scheduled, including setting aside the right to discovery. He added that he would not be calling expert evidence.
[17] The motion judge was clearly disturbed by the appellants’ behaviour. He said: “I agree that courts should strive to have matters determined on their merits and not be defeated by technical defaults, but parties are responsible for the[ir] actions, not only with respect to those actions upon which a cause of action arose, but thereafter as well.” We agree.
[18] The motion judge’s analysis was relatively brief on the issue of prejudice, but respondents’ counsel pointed out that the litigation ground would shift significantly if the default were set aside. In particular, the respondents would be obliged to prove the appellants’ fault over a decade after the critical event, and over eight years after the noting of default deemed liability to be admitted. This outcome is unacceptable in a situation where the trial is imminent, and the necessary evidence is difficult to get. Counsel for the appellants admitted that the server, who might well have over-served the patron who attacked Mr. Franchetti, cannot be located, and also that the bar’s records are sparse and may not exist at all for that time. Had these elements of prejudice been made known to the motion judge, they would only have shifted the balance of prejudice even more in favour of the respondents.
[19] The appeal is dismissed with costs in favour of the respondents fixed at $10,000 all-inclusive.
